An integrated approach to agricultural trade and development issues: Exploring the welfare and distribution issues.

Computable general equilibrium (CGE) analysis has been widely used to analyze the economic effects if trade liberalization initiatives. By way of illustration, this paper begins by reviewing CGE studies of trade liberalization within the Asia Pacific Economic Cooperation (APEC), including studies of the effects of agricultural trade liberalization. Although these studies predict substantial welfare gains, they fail to address the developmental and political economy issues which typically cause Governments to hold back from agricultural trade liberalization. Distributional effects are central to these issues. Using a proposal known as the APEC Food System as a case study, the paper outlines and illustrates an extension of CEG methodology that allows an exploration of the distributional effects of agricultural trade liberalization, and of how welfare and distribution outcomes can be modified by various types of policies designed to improve labour productivity in the agricultural sector. In the process it is shown how this extended CGE methodology can throw light on the potential appropriately designed policies of this kind to simultaneously improve both welfare and distribution outcomes of trade liberalization