Trade and sustainable development: spatial distribution of trade policies impacts on agriculture

Abstract

As the use of global and national computable general equilibrium (CGE) models has become more widespread, most policies still remain at the regional or sub-national level. This level of disparity requires an approach that bridges the gap between national results and sub-national policies. In this study we combine a general equilibrium model with geographical information to spatially map the effects of trade liberalization on the agricultural sector. This study tries to bridge this gap by merging the results of a CGE analysis with spatial geo-referenced data at the municipal level by means of GIS techniques. This paper provides a methodology that combines micro-level information with the results of a CGE model and presents them in a spatial way. We apply this methodology to a simultaneous free trade agreement (FTA) between Andean countries and the United States, and its impacts on Ecuador's agricultural sector. The methodology developed in this paper uses three sources of information. First, trade liberalization results obtained using a general equilibrium model called GTAP-AGR. Second, micro data on producers and crops from the agricultural census of Ecuador. This census allows us to model price transmission mechanisms at the farm level based on farmer's characteristics. This captures farmer's imperfect market integration structure and imperfect transmission of price changes at the border. Third, geographically referenced data for Ecuador from databases of ECLAC. Using these data sources, we are able to match the economic results from a CGE model with the census micro-data from the agricultural census of Ecuador and present them through the spatial lens. We are able to distribute changes in value of production for each production unit according to the importance of a specific crop in the political administrative unit. These results show the geographic effects of the FTA on Ecuador's agriculture, and how various types of producers would be affected from trade liberalization. This kind of results would enable policy makers to formulate policies in a geographic or territorial way. This would also allow policy makers to implement differentiated policies to help different types of farmers groups cope with potential negative impacts from free trade.