Foodgrain price stabilisation in an open economy: A CGE analysis of variable trade levies for India

Within the present multilateral trading system, the developing countries ar e obliged to gradually open up their agricultural sector to world markets. As a result of this, the effectiveness of conventional instruments of food price stabilisation will be greatly reduced. How then is food price stabili ty to be maintained in a liberalised open economy? This article presents a general-equilibrium evaluation of using variable trade levies on agricultur al trade to stabilise foodgrain prices in response to exogenous shocks. Thi s is clone for the Indian economy with the help of a multi-period computabl e general equilibrium (CGE) model, focused on agriculture non income distri bution. The model distribution and food security to external and internal s hocks under varying degrees of trade openness. The results show that both s hocks are distributionally regressive and, with external shocks, become mor e so, the more open the economy is. WTO-consistent variable levies on agric ultural trade are found effective in stabilising prices, checking real wage erosion and containing regressive distributional effects.