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Recent data show that the institutional content of preferential trade agreements has evolved over time. Although pre-1990s preferential trade agreements mostly focused on tariff liberalization, recent agreements increasingly contain deep provisions in diverse areas, such as intellectual property rights, investment, and standards. At the same time, there has been a remarkable increase in the internationalization of production through foreign direct investment and outsourcing. This paper employs the Antràs and Helpman (2008) model of contractual frictions and global sourcing to study how deep trade agreements affect the international organization of production. The paper constructs new measures of the depth of preferential trade agreements and of vertical foreign direct investment to test the theory. Consistent with the model, the analysis finds evidence that the depth of trade agreements is correlated with vertical foreign direct investment, and that this is driven by the provisions that improve the contractibility of inputs provided by suppliers, such as regulatory provisions. Because this implication of the model is specific to the so-called “property rights” theory of the multinational firm, the findings provide empirical support to this approach vis-à-vis alternative theories of firm boundaries.

A structural gravity model is used to estimate barriers to services trade across many sectors, countries, and time. Since the disaggregated output data needed to infer border barriers flexibly are often missing for services, this paper derives a novel methodology for projecting output data. The empirical implementation sheds light on the role of institutions, geography, size, and digital infrastructure as determinants of border barriers. The paper finds that border barriers have generally fallen over time, but there are differences across sectors and countries. Notably, border effects for the smallest economies have remained stable, giving rise to a divergent pattern across countries.

The WTO has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements (PTAs). Should economists see this as an efficient institutional hand-off, where the WTO has carried trade liberalization as far as it can manage, and is now passing the baton to PTAs to finish the job? This paper surveys a growing economics literature on international trade agreements and argues on this basis that the WTO is not passé. Rather, and subject to some caveats, this survey of research to date suggests that the WTO warrants strong support while a more cautious view of PTAs seems appropriate.

During the 1960s and 1970s most developing countries imposed anti-agricultural policies, while many high-income countries restricted agricultural imports and subsidized their farmers. Both sets of policies inhibited economic growth and poverty alleviation in developing countries, while doing little to assist small farmers in high-income countries. Since the 1980s, however, many developing countries began to reduce the anti-agricultural bias of sectoral policies, and from the early 1990s the European Union began to move away from price supports to more-direct forms of farm income payments. This paper summarizes a forthcoming book that seeks to explain this evolving pattern of distortions to incentives conceptually and econometrically by making use of new political economy theory and a new globally comprehensive and consistent set of estimates of the changing extent of annual distortions over the past half-century. The distortion estimates involve more than 70 products that cover around 70 percent of the value of agricultural output in each of 75 countries that together account for over 90 percent of the global economy, and they expose the contribution of the various policy instruments (both farm and non-farm) to the net distortion to farmer incentives. Such a widespread coverage of countries, products, years and policy instruments has allowed this collection of studies to test a wide range of hypotheses suggested by the new political economy literature, including the importance of institutions. As a set it sheds much new light on the underlying forces that have affected incentives facing farmers in the course of national and global economic and political development, and hence on how those distortions might change in the future - or be changed by concerted actions to offset political pressures from traditionally powerful vested interests.

The objective of this paper is to evaluate the extent to which trade agreements affect agricultural trade policy volatility. Using a new panel database compiled as part of the World Bank's agricultural distortions research project, the author estimate the effect of regionalism on the volatility of price distortions measured by the absolute value of their first differences, averaged, for each country and year, over all agricultural goods. Using an instrumental-variable approach to correct for the endogeneity of regional trade agreements, (RTAs), the author fined that participation in RTAs has a significantly negative effect on agricultural trade-policy volatility. The author find that the World Trade Organization (WTO) agricultural agreement also contributed to reducing agricultural trade-policy volatility, in spite of the weak disciplines involved, but the effect is only weakly identified. The results are robust to a variety of robustness checks and hold, in particular, for the Latin American sub-sample.

This chapter begins with a brief summary of the long history of national distortions to agricultural markets. It then outlines the methodology used to generate annual indicators of the extent of government interventions in markets, details of which are provided in Anderson and appendix A. A description of the economies under study and their economic growth and structural changes over recent decades is then briefly presented as a preface to the main section of the chapter, in which the nominal rates of assistance and consumer tax equivalents (NRA and CTE) estimates are summarized across regions and over the decades since the 1950s. These estimates are discussed in far more detail in the regional chapters that follow. A summary is also provided of an additional set of indicators of agricultural price distortions presented in chapter eleven that are based on the trade restrictiveness index first developed by Anderson and Neary (2005). In chapter twelve the focus shifts from countries to commodities, and all the various distortion indicators are used to provide a sense of how distorted are each of the key farm commodity markets globally. Then chapter thirteen uses the study's NRA and CTE estimates to provide a new set of results from a global economy-wide model that attempts to quantify the impacts on global markets, net farm incomes and welfare of the reforms since the early 1980s and of the policies still in place as of 2004. The chapter concludes by drawing on the lessons learned to speculate on the prospects for further reducing the disarray in world agricultural markets.

Despite reforms over the past quarter-century, world agricultural markets remain highly distorted by government policies. Traditional indicators of those price distortions such as the nominal rate of assistance and consumer tax equivalent provide measures of the degree of intervention, but they can be misleading as indicators of the true effects of those policies. By drawing on recent theoretical literature that provides indicators of the trade- and welfare-reducing effects of price and trade policies, this paper develops more-satisfactory indexes for capturing distortions to agricultural incentives. It then exploits the agricultural distortion database recently compiled by the World Bank to generate estimates of them for both developing and high-income countries over the past half century, based on a sample of 75 countries that together account for all but one-tenth of the world's population, gross domestic product (GDP) and agricultural production. While they are still only partial equilibrium measures, they provide a much better approximation of the true trade and welfare effects of sectoral policies without needing a formal model of global markets or even price elasticity estimates.

The story of agricultural policy in Northeast Asia over the past 50 years illustrates the dramatic changes that can occur in distortions to agricultural incentives faced by producers and consumers at different stages of economic development. In this study of Japan, the Republic of Korea (the southern part of the peninsula, hereafter referred to as Korea) and the island of Taiwan, China (hereafter referred to as Taiwan), the authors estimate the degree of distortions for key agricultural products as well as for the agricultural sector as a whole over a period when these economies transitioned from low- or middle- to high-income status the beginning of the so-called East Asian economic miracle of dramatic industrial development. The three economies in terms of the nature of their economies, including their resource endowments that determined the course of their modern economic growth and development. The evolution of agricultural policies in the three economies is then reviewed before discussing how to measure distortions to agricultural incentives using the methodology from Anderson et al. (2008), the focus of which is on nominal and relative rates of assistance. Implications of empirical findings for policy reforms in the three economies are discussed in the final section, where the authors also identify lessons for later-developing economies experiencing similar structural transformations in the course of their economic growth. Statistical observations are found to be consistent with the hypothesis that the success of rapid industrialization that advanced these economies to the middle-income stage resulted in declines in agriculture's comparative advantage associated with the growing income disparity between farmers and employees in non-agricultural sectors.

Agriculture in Western Europe enjoys a degree of diversity that reflects a wide variety of soils and climatic conditions ranging from the arid Mediterranean regions to the Arctic Circle. Superimposed on this natural diversity is the complexity of different social, economic and political conditions in the eighteen countries that are the subject of this chapter. History has played a major part in creating this patchwork, particularly the different paths that countries took from feudalism to independent farming units and the inheritance laws that influenced the extent to which land ownership was transmitted from generation to generation. Average farm size varies considerably in the countries of Western Europe, in turn reflecting the relative political and social importance of landowners and small farmers. By the late nineteenth century, these various factors had determined a structure of farming in the Western European region that is still visible today. Productivity growth in Western Europe's agricultural sector compared favorably with that in the manufacturing sector in the immediate post-war period. Over the period 1949 to 1959, by which time the economy had largely recovered from the war-time disruptions, output per person in agriculture had increased by more than that in manufacturing in most of the countries in Western Europe. The productivity growth was a combination of output increases as a result of mechanization and modernization, and the outflow of labor as other sectors absorbed rural workers.

Cotton is an important cash crop in many developing economies, supporting the livelihoods of millions of poor households. In some countries it contributes as much as 40 percent of merchandise exports and more than 5 percent of gross domestic product (GDP). The global cotton market, however, has been subject to numerous policy interventions, to the detriment of nonsubsidized producers. This examination of the global cotton market and trade policies reaches four main conclusions. First, rich cotton-producing countries should stop supporting their cotton sectors; as an interim step, transfers to the cotton sector should be fully decoupled from current production decisions. Second, many cotton-producing (and often cotton-dependent) developing economies need to complete their unfinished reform agenda. Third, new technologies, especially genetically modified seed varieties, should be embraced by developing economies; this will entail extensive research to identify varieties appropriate to local growing conditions and the establishment of the proper legislative and regulatory framework. Finally, cotton promotion is needed to reverse or at least arrest cotton s decline as a share of total fiber consumption.