Effects of exchange rate misalignment on agricultural producer support estimates: Empirical evidence from India and China

There have been different degrees of exchange rate disequilibrium in the developing countries during recent transition or reform periods. The level of the exchange rate and its misalignment can have significant impacts on agricultural policy measures such as the Producer Support Estimates (PSEs). However, little efforts have been made to explicitly take into account the issue of exchange rate misalignment. In the conventional PSE studies the prevailing actual (nominal) exchange rates are usually used. There is general agreement that the use of actual exchange rates may introduce a bias in the PSE calculations, and that this bias can be substantial when the actual rates are significantly out of equilibrium, but there is much less agreement on the most appropriate alternative.; This dissertation proposes a theoretical and an empirical model for estimating equilibrium exchange rates.; The relevance and usefulness of the exchange rate equilibrium and disequilibrium in the calculation of the PSEs for India and China are then discussed. Results from the commodity-specific measures including the Market Price Support (MPS) and the PSE show that agricultural support levels are quite sensitive to alternative exchange rate assumptions.; Results based on the commodity-specific PSE show that the exchange rate effect also depends on the relative importance of different PSE components. (Abstract shortened by UMI.)...