© 1988 International Bank for Reconstruction and Development / The World Bank
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Agricultural Incentives in Developing Countries: Measuring the Effect of Sectoral and Economywide Policies
The authors are codirectors of the World Bank comparative study of the political economy of agricultural pricing policies. Anne O. Krueger is Arts and Sciences Professor of Economics at Duke University and was formerly Vice President of the Economics and Research Staff at the World Bank. Maurice Schiff is an economist at the World Bank. Alberto Valdés is an economist at the International Food Policy Research Institute. The authors wish to thank Emmanuel Skoufias for his assistance.
The impact of sector-specific (direct) and economywide (indirect) policies on agricultural incentives for eighteen developing countries for the period 1975–84 are estimated. The direct effect is measured by the proportional difference between the producer price and the border price (adjusting for distribution, storage, transport, and other marketing costs). The indirect effect has two components. The first is the impact of the unsustainable portion of the current account deficit and of industrial protection policies on the real exchange rate and thus on the price of agricultural commodities relative to nonagricultural nontradables. The second is the impact of industrial protection policies on the relative price of agricultural commodities to that of nonagricultural tradable goods. We find that (1) in almost all cases the direct effect is equivalent to a tax on exportable goods (–11 percent on average) and to a subsidy for importables (20 percent on average); (2) the indirect effect also taxes agriculture (–27 percent on average) and dominates the direct effect (whether the direct effect is positive or negative); and (3) the direct policies for both importables and exportables stabilize domestic producer prices.