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The World Bank Economic Review 2004 18(2):175-204; doi:10.1093/wber/lhh037
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THE WORLD BANK ECONOMIC REVIEW, VOL. 18, NO. 2,
© The International Bank for Reconstruction and Development / THE WORLD BANK 2004; all rights reserved.

Agricultural Tariffs or Subsidies: Which Are More Important for Developing Economies?

Bernard Hoekman, Francis Ng, and Marcelo Olarreaga

Bernard Hoekman is senior advisor in the Development Research Group at the World Bank and a research fellow at the Centre for Economic Policy Research, London; his e-mail address is bhoekman{at}worldbank.org. Francis Ng is an economist in the Development Research Group at the World Bank; his e-mail address is fng{at}worldbank.org. Marcelo Olarreaga is a senior economist in the Development Research Group at the World Bank and a research affiliate at the Centre for Economic Policy Research, London; his e-mail address is molarreaga{at}worldbank.org.

Abstract

This article assesses the impact of the world price–depressing effect of agricultural subsidies and border protection in OECD countries on developing economies' exports, imports, and welfare. Developing economy exporters are likely to benefit from reductions in such subsidies and trade barriers, whereas net importers may lose as world prices rise. A simple partial equilibrium model of global trade in commodities that benefit from domestic support or export subsidies is developed to estimate the relevant elasticities. Simulation results suggest that a 50 percent reduction in border protection will have a much larger positive impact on developing economies' exports and welfare than a 50 percent reduction in agricultural subsidies. Although there is significant heterogeneity across developing economies, the results suggest that efforts in the Doha Round of negotiations should be directed at substantially reducing border protection.


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