Question 1:
Agricultural Development Concepts and Theory [25 Points]
a) Achieving economic growth is not synonymous to achieving economic development. Do you agree or disagree and why? [5 points]
b) How does the Lewis two-sector model explain the process of economic development? What are some of the critiques of this model? [5 points]
c) In the simplest and most concise way possible, and use a diagram if you can, explain why most economists argue that free trade is good for economic welfare. [5 points]
d) What is the agricultural household model and why is it useful? [5 points]
e) A researcher observed that an increase in the price of rice did not induce rice farmers to increase production and supply to the market. What is the main reason subsistence households do not participate in markets? Would they be better off if they did? [5 points]
Question 2:
Impact Evaluation of Agricultural Intervention Programs [25 Points]
The Government of Utopia (GoU) wants to hire a consultant to help it evaluate the impact of a donor funded program to promote the use of commercial fertilizer in maize production among its smallholder producers. The program that started 7 years ago purposively selected 1000 households to participate in field demonstration trials and most of those initial participants are now adopters of commercial fertilizer use.
Another consultant from a private consulting firm has advised the GoU that for the purpose of demonstrating the impact of the program it is essential that a random sample of non-adopters be surveyed in addition to the adopters. The Director of Public Service has decided to hire you to advise the Government on how to evaluate the impact of the donor funded program.
a) Do you agree with the consultant or not? What are some of the data considerations that you would advise the government to pay attention to when collecting data and why? [5 points]
b) What factors would you advise the Government to consider in investigating the key determinants of fertilizer adoption and why? [5 points]
c) What are some of the outcome of interest (indicators) that you would recommend when evaluating the impact and why? [5 points]
d) What econometric model would you recommend using to estimate the fertilizer adoption function (i.e., probability of being an adopter or not) and why? [5 points]
e) The Minister of Agriculture does not see the need for an elaborate study. He has suggested that computing and comparing the averages of the outcomes of interest for the adopters and non-adopters of fertilizer is enough to determine the project’s impact. Do you agree or disagree with his approach and why? [5 points]
Question 3:
Domestic and International Agricultural Policy and Instruments [25 Points]
Vietnam has pursued a policy of self-sufficiency in food production by promoting the use of chemical fertilizer to increase its agricultural output. Fertilizer was introduced in the country in the 1960s and since then the country has heavily relied on fertilizer imports to meet the local demand. Following the market liberalization move in the 1980s, some private players have been allowed to set up fertilizer production facilities in the country. The main stable food in the country is rice
Due to high volatility of fertilizer prices in the international market the Government of Vietnam is considering policy measures to protect the local fertilizer industry from foreign competition while keeping fertilizer prices affordable to the farmers. There have been concerns that without free trade domestic fertilizer is more expensive than imported fertilizer.
The Minister of Agriculture would like to address this problem and is considering three policy interventions:
- Impose a per unit import tariff (t) on imported fertilizer
- Impose a per unit production subsidy (s) equal to the import tariff
- Impose a per unit import tariff followed by a production subsidy where t = s.
You have been hired as a consultant to help the Minister of Agriculture evaluate the welfare implications of the three options. The Minister is particularly interested in the welfare effect of the policies to fertilizer producers, farmers, and taxpayers.
a. With the use of appropriate partial equilibrium diagrams (for each option) summarize and briefly explain to the Minister the welfare effects of the 3 policy options. Vietnam is a small country considering that its demand of fertilizer in the international market is negligible. [20 points]
b. Now compare the 3 options and provide overall recommendations of which option to pursue and why. [5 points]
Sample Solution