Distortions to agricultural markets : trends and fluctuations, 1955 to 2010.

The thesis analyses the patterns and underlying political economy causes of long-run trends and short-run fluctuations in national distortions to agricultural incentives. It does so by exploiting, revising and expanding a dataset of agricultural distortion measures in developing and developed countries from 1955 to 2004 for developing and 2007 for high-income countries by Anderson and Valenzuela (2008). More specifically, it extends its time period to 2009 for developing countries and 2010 for high-income countries. An essential contribution of the thesis is the update of this database to 2010 in order to capture the most recent international food price spike period. The large dataset makes it possible to analyse insulating behaviour in agricultural markets historically over the past 55 years, and to compare governments' reactions to food market shocks and upwards and downwards price spikes in the most recent years vis-a-vis those in the past. The thesis examines the extent of domestic market insulating behaviour of governments by both food-exporting and food-importing countries. This is because the policies of both country groups contribute substantially to international food price volatility and therefore to economic instability and to trade and welfare fluctuations. The international-to-domestic food price transmission elasticity is used as one indicator of such policy action. The evidence also allows us to test to what extent the policy decisions of governments achieve the goal of protecting domestic producers or consumers from international price spikes in either direction. The results of the analysis are subdivided into the contribution of different regions, country groups and policy instruments. The study also quantifies the extent of the contribution of changes in national agricultural trade restrictions to food price spikes internationally, over and above to the initial exogenous price shock. Reactions of food-exporting and food-importing countries at the same time exacerbate price spikes in international food prices and therefore are a concern for all trading nations because of their nontrivial contribution to domestic and international volatility and uncertainty. To test empirically the political economy causes of such market insulating behaviour of governments, the loss aversion theory of Freund and Oezden (2008), with amendments by Jean, Laborde and Martin (2010) to ensure suitability for agricultural markets, is drawn upon. The focus of this part of the thesis is on the question as to why countries alter assistance levels through variations in trade restrictions to protect one domestic group at the cost to others within the nation, rather than more-direct, more-efficient domestic policy instruments to protect either producers or consumers from price spikes. The final part of the thesis focuses on potential future developments in agricultural market distortions and provides an alternative agricultural protection counterfactual for trade policy modelling than the status quo. After identifying the crucial influencing factors on agricultural distortions in the past, projections of assistance measures are provided for the year 2030. These projections make it possible to model an alternative scenario of the costs based on newly estimated political econometric equations of trade-distorting policies in the future, to compare with one that assumes no future policy changes in their baseline.Thesis (Ph.D.) -- University of Adelaide, School of Economics, 201