Agricultural Trade Liberalization in a Multi-Sector World Model

Impacts of agricultural and nonagricultural trade liberalization on agriculture are assessed in a multi-commodity, multi-country framework. By modeling simultaneously all goods sectors of the economy, we evaluate the importance of (1) relative price changes between sectors and (2) income and exchange rate adjustments that follow trade liberalization in a world of floating rates. Specifically, we compare two cases using a static world policy simulation (SWOPSIM) model: agricultural multilateral liberalization and complete multilateral liberalization with floating exchange rates for all countries/region. In both cases agricultural commodity prices tend to increase, an effect which is more pronounced when currency values adjust. The developing countries, in particular Argentina, Brazil, and Mexico, have the most significant advances in agricultural and total domestic product when exchange rates vary. Morever, the gains from international trade are extended to all countries/regions explicitly specified in the model.