How far down the path to free trade? The importance of rice price stabilization in developing Asia

International trade agreements are pushing the world in the direction of fr ee trade. But price stabilization, which is inconsistent with completely fr ee trade, remains important in developing Asia because of the large share o f rice in economic output. A policy of pure price stabilization for rice, w ithout consistent protection (either subsidization or taxation), can help t o create the macroeconomic stability that is essential for sustained rapid economic growth by increasing the quantity and efficiency of investment thr oughout the economy. Pure price stabilization can also generate significant equity gains by protecting poor consumers and farmers from sharp fluctuati ons in prices. While domestic commodity price stabilization schemes have a checkered history around the world, the experience of Asian countries in st abilizing rice prices offers more scope for optimism. Asian governments hav e been generally successful in stabilizing rice prices, and there are sever al instances where this has been accomplished without sustained protection of either consumers or farmers. However, there is room for improved stabili zation mechanisms that would lower the costs of intervention. (C) 2001 Else vier Science Ltd. All rights reserved.