1748. Has Agricultural Trade Liberalization Improved Welfare in the Least-Developed Countries? Yes

Merlinda D. Ingco
(April 1997)

Most of the gains from multilateral liberalization come from the countries' own liberalization efforts. Least-developed countries that failed to liberalize their trade policy lost the opportunity for gains that the Uruguay Round made possible.

Ingco evaluates the progress in agricultural liberalization - and the welfare effects for least-developed and net food-importing countries - as a result of agricultural price shocks resulting from the Uruguay Round. She finds that:

•  The changes in welfare are significantly affected by the structure of trade and distortions in the domestic economy.

•  Although many economies are hurt by increases in world prices, losses in terms of trade are small relative to total GDP. Only in a few countries does the estimated welfare change constitute more than 1 percent of GDP.

•  In several countries, the distortion effects are significantly larger than the terms-of-trade effects. In some cases, the distortion effects work in opposition to the terms-of-trade effects and are large enough to reverse the sign of the net welfare change.

In short, removing policy distortions could convert the small loss in terms of trade to potential gains. But many least-developed, net food-importing countries did not use the Round to support domestic efforts at trade reform. As most studies show, most gains from multilateral liberalization come from the countries' own liberalization efforts, so countries that failed to liberalize their trade policy lost the opportunity for gains.

This paper - a product of the International Trade Division, International Economics Department - is part of a larger effort in the department to evaluate the effects of trade liberalization with special focus on least-developed and net-food importing developing countries. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Jennifer Ngaine, room N5-060, telephone 202-473-7947, fax 202-522-1159, Internet address trade@worldbank.org. (29 pages)

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