Does Agricultural Trade Liberalization Reduce Rural Welfare in Less Developed Countries? The Case of CAFTA

Abstract

Findings from aggregate economy‐wide models suggest that removing tariffs on agricultural imports is detrimental to rural welfare in less developed countries. This paper explores the rural welfare effects of agricultural trade liberalization called for under the Central American Free Trade Agreement (CAFTA), using a disaggregated rural economy‐wide model nesting a series of agricultural household models. Lower tariffs reduce nominal incomes for nearly all rural household groups in El Salvador, Guatemala, Honduras and Nicaragua. However, they also lower consumption costs substantially. The net effect on rural households' welfare is positive in most cases, implying that pre‐CAFTA agricultural protection policies are disadvantageous for most rural household groups.

Immediate impact of COVID-19 pandemic on farming systems in Central America and Mexico

“…Rural households in the region, mainly smallholders, combine farming with other income sources, including wage labor in the agricultural sector, employment in other sectors, value-added, migration, and remittances ( Taylor et al, 2010 ). In the context of COVID-19, these diverse income streams allowed these farmers greater flexibility to increase or reduce agricultural production versus time dedicated to other income-generating activities.…”

Impacts of price and productivity changes on banana‐growing households in Uganda

“…Following Taylor and Adelman (2003), Dyer et al (2006), and Taylor et al (2010), we use Cobb–Douglas production and utility functions. The linear expenditure system is a common approach taken to estimate demand, and consumption demands for each household are calculated using this approach.…”