Monday, July 11, 2005

To Qualify My Remarks...

Perhaps best not to do content-free and theory-full, blogging after all. I reproduce in full a Tyler Cowen post:
...the reality is that liberalizing agricultural trade would largely benefit the consumers and taxpayers of the wealthy nations. Why? Because agricultural subsidies serve first and foremost to transfer resources from consumers and taxpayers to farmers within the same country...Other countries are affected only insofar as world prices rise. But the big, clear gainers from such price increases would be countries that are large net exporters of agricultural products -- rich countries, such as the United States, and middle-income countries, such as Argentina, Brazil, and Thailand.

What about the poorer countries? For one thing, many poor countries are actually net importers of agricultural products, and so they benefit from low world prices. An increase in prices may help the rural poor, who sell the agricultural goods, but it would make the urban poor -- the consumers -- worse off. Net poverty could still be reduced, but to what extent depends in complicated fashion on the working condition of roads and the markets for fertilizer and other inputs...

Regardless of whether agricultural liberalization increases or decreases poverty, the impact would not be significant. Most studies predict that the effect of such liberalization on world prices would be small...

Furthermore a general reduction of trade barriers in rich countries could leave some of the world's poorest countries worse off. A substantial part of least-developed countries' exports enjoy favorable conditions of access to the markets of rich countries under various preferential trade arrangements...

That is Nancy Birdsall, Dani Rodrik, and Arvind Subramaniam, in the July/August issue of Foreign Affairs.

My take: A few caveats are needed. First, the dynamic gains are higher than the above words would indicate. Free trade may encourage many nations to raise their agricultural productivity. Second, agricultural free trade will lead to lower prices for many commodities, especially in the longer run. That all being said, don't be surprised if China, the U.S. and Mercosur come out as the big winners, not Africa.

I would like to read this article, but my access to Foreign Affairs is rather constrained at the moment, what with being in Dakar and all. I presume this is largely right for I like Dani Rodrik and think him tremendously smart and insightful. Though how fact-full, versus theory-full is this article? For it seems that the article takes current flows of food as given, which seems a rather odd choice given that subsidies are sufficiently high that they must dramatically alter trade flows from a world sans subsidies. And yes, in the transition net importers would be hurt, but that seems an inevitable cost. But isn't the goal to make Africa a net exporter over time (really, should Senegal, or at least cheap restaurants in Gueule Tapée in Dakar, be importing rice from Asia, given labor costs?)? Also, with regards to the urban-rural split: rural areas are generally poorer than urban areas, so while it seems evil to advocate a policy that makes quite poor urban dwellers worse off to make desperately poor rural inhabitants better off, this is effective if the goal is taking people out of desperate poverty.

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