Agricultural trade liberalization: growth, welfare and large country effects

The impacts of trade liberalization for India have been examined with an applied general equilibrium model with nine agricultural sectors, one non-tradeable nonagriculture sector and one tradeable nonagriculture sector and with five rural and five urban expenditure classes. Different scenarios are generated using the model. Since comparison of GDP in two alternative scenarios can be misleading, the policy alternatives are assessed on the basis of their impact on welfare in terms of equivalent incomes of different expenditure classes. A policy is assessed preferable only when the distribution of welfare is found to be preferable in a well defined way. It demonstrates the importance of accounting for large country effects in rice trade and estimates the welfare optimal tariff/ quota for rice exports for India-which is shown to be just half a million tons of net export of rice. The results also show that nonagricultural trade liberalization is even more important for agriculture than even agricultural trade liberalization, both of which help accelerate growth. © 1997 Elsevier Science B.V