GOVERNMENT POLICY AND INTERNATIONAL TRADE IN RICE

This thesis contains an analysis of the role of government policy in the international rice market during 1961-77. Since nearly all governments control the quantity of their exports or imports in any given year, the importance of policy for the variation and levels of world trade and prices results by definition. Econometric analysis suggests that variations in the trade behavior of nine Asian countries can explain over eighty percent of the variation in world prices during the 1961-77 period. A quadratic form provided the best fit to the data, suggesting a demand curve kinked around its long-run price level. The influence of policy on world price levels can not be quantified due to lack of data, but the predominance of consumer subsidy-producer tax policies among the major trade participants indicates that the level of world prices has probably been increased by government intervention.;The reliance of governments on trade policy was most frequently due to objectives of increased domestic production, subsidized domestic consumption, or stabilized internal price levels. With the possible exception of the price stabilization objective, the trade literature suggests that trade policies are inefficient interventions and that domestic tax or subsidy policies are preferable. The principal assumptions underlying these results are that policy implementation costs are unimportant and that the income redistributional effects of policies can be ignored. Under these assumptions, alternative policies are compared in terms of their effects on producer's and consumer's surplus.;A more relevant comparison of policies can be based on the effects on production efficiency, policy implementation costs and income distributional effects, because consumer's surplus effects are unimportant in magnitude, and without lump-sum income redistributions, indeterminate in sign. While comparative advantage and the maximization of real income by world prices can be given a rigorous interpretation in production, no parallel conclusions can be drawn about consumption. Hence, distortions of world prices for consumers can not be assumed to reduce welfare. On the basis of the above criteria and the results of the Food Research Institute's studies of the rice economies of a number of Asian and West African countries, trade policy appears an optimal intervention to increase domestic production. But only a few countries have trade policy for this purpose. The more common objective of consumer subsidization could be attained more efficiently with direct consumer subsidies rather than trade policy, because subsidies, if administratively feasible, would have a less adverse impact on both production efficiency and income distribution.;Although policy decisions influence the level and variability of world prices, prices retain their importance as an allocative mechanism. Analyses of cif and fob unit values and the prices of six varieties of Thai and U.S. rice suggest that the international market is well integrated across countries and most qualities and over a short time period. These results suggest that the use of the price of any widely traded variety, such as Thai 5 percent brokens, serves as a reasonable indicator of world price movements. Perhaps more important the impacts of changes in national trade policy are transmitted throughout the international market.