The Political Economy Of Systematic Government Intervention In Agriculture

The systematic subsidization and exploitation of agriculture by developed and developing countries respectively, has generated a policy paradox for which there is no satisfactory explanation. This paper attempts to provide an explanation of this policy paradox. It first develops a simple political economy model which treats an interest group's relative political weight as endogenous. Interest groups compete in the political market to improve their relative political weight. This relative political weight appears as a parameter in the government's political preference function. The government maximizes the value of this function subject to the constraints imposed by the economic market to determine the level of a policy. The model is then estimated for wheat using data for twelve developed and thirteen developing countries from 1958 to 1987.The estimation results for developed and developing countries provide empirical support for the theoretical conjectures. The results suggest that sustainable policy reform in agriculture may not be possible if the political economy of agriculture price policies in developed and developing countries are ignored.