Estimation of trade and domestic distortions: an application to world agriculture

The world’s nations often produce commodities for which they have no apparent comparative advantage, and do so with techniques that are not particularly efficient by world standards. These inefficiencies may arise from various forms of trade and domestic distortions, as described in Chau et al., Int Econ Rev 44:1079–1095, (2003). We estimate these distortions for 33 countries of the world using a newly compiled data set. We find that domestic distortions tend to be slightly more important than trade distortions. For the average country, revenues in the agricultural sector would be 26% higher if domestic distortions were eliminated, but 21% higher if trade distortions were eliminated. Our measures of trade and domestic distortions across countries provide a complement to measures of protectionism such as producer subsidy equivalents.