Economic Growth, Trade Reforms and Agricultural Protectionism in Southeast Asia

The study used a modified version of an applied general equilibrium model and database, GTAP, to generate comparative static projections about the future patterns of production, consumption, trade and agricultural protection, focusing on the SEA-4 countries. Exogenous regional macroeconomic forecasts of growth rates in GDP and factor endowments from 1992 to 2005 were used to bring the world economy to 2005. The Uruguay Round trade reforms were taken into account. For the SEA-4, output and exports of processed food and manufactures, especially textiles and wearing apparel, are projected to expand. The importance of the agricultural sectors in the SEA-4 is projected to decline as evidenced in the reduced shares of agriculture to total value-added, wage and capital payments, and exports and in the increased shares to total imports. The comparative static projections framework was extended to model the agricultural protection that may arise in response to the structural changes from economic growth. A representative farm and a representative non-farm household was defined under each representative regional household. The projected disparity in the real incomes of the farm and non-farm households was used as a stylized target in simulating endogenous agricultural protection in the SEA-4—either in the form of a land subsidy, output subsidy or border protection. For the SEA-4 countries and the global economy, agricultural border protection in SEA-4 will be costlier than an agricultural output subsidy which in turn is costlier than a land subsidy, which acts as a non-distortionary, lump-sum transfer in the model. The economic growth projections are useful in describing the 2005 economy after considering the impact of the structural changes and of the Uruguay Round. Although the results of the endogenous agricultural protection simulations suggest a hierarchy between the policy instruments in terms of their welfare impacts, consideration should be given to the relative likelihood of being able to implement each policy instrument in each country. The projected impacts of economic growth and the Uruguay Round will be different when consideration is made for these countries\u27 potential policy response during the projections period to protect their agricultural sector