Effects of exchange rate and trade policies on agriculture in Pakistan

Abstract

Examines the Pakistan experience from the early 1960s until 1987. It attempts to quantify the effects on the agricultural sector of both sectoral policy interventions and the indirect effect of economy-wide trade and macroeconomic policies. The empirical findings are analyzed in a broad policy context, and the authors draw some implications for development strategy in Pakistan. Regression analysis indicates that the trade policy bias toward importables has resulted in a real exchange rate appreciation of approximately 18 to 20% since the mid-1970s. Despite some depreciation of the nominal exchange rate since 1982, quantitative restrictions on imports have remained in place and in 1987 resulted in a high implicit tariff on imports of 47% and an appreciation of the real exchange rate of 26%. A model of the real effects of changes in agricultural prices is introduced, and results of two model simulations are given, with domestic prices of agricultural products determined using border prices measured at the official exchange rate, and border prices with an adjustment in the real exchange rates. Government intervention in agricultural markets also had some positive effects. Domestic producer prices of all major agricultural commodities except vegetable oil and fertilizer were less variable than border prices evaluated at either the official or the simulated free-trade equilibrium exchange rate. The large dairy sector greatly benefited from protection from milk imports, and all consumers faced more stable food prices. -from Authors