AGRICULTURAL TRADE-POLICY ANALYSIS AND INTERNATIONAL-TRADE THEORY - A REVIEW OF RECENT DEVELOPMENTS

The aim of this review is to determine the extent to which specific recent developments in international trade theory can help to provide fresh insights into how agricultural protectionism might better be analysed. The particular extensions reviewed with respect to their commercial policy implications are: differentiated products; oligopolistic international markets; risk, uncertainty and imperfect information; and the addition of political variables to provide a framework of political economy. In each case the supremacy of free trade as the optimal trade policy choice is weakened. The nature of the optimal trade policy depends on the particular set of assumptions made and on detailed empirical information. In practice such information may be too costly and difficult to obtain, thereby rendering the pursuit of optimal trade policies impracticable. However, by making the political process endogenous and by taking account of income risk, a better description of reality is obtained, one that explains why the advice of economists about the choice of trade policy instruments has been ignored so often by the agricultural policy process.