Theoretical and Empirical Study on Agricultural Trade Policy

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Agricultural sector in Japan is protected by the trade policy such as tariff and import quota. The ultimate purpose of WTO is to promote the free trade, and is based on the proposition that the social economic welfare is maximized by the free trade. When there are distortions other than agricultural sector, it is not desirable to pay attention only to the agricultural distortion from the viewpoints of the theory of second best. This arise the problem how distortions should be removed for welfare improving. To consider this problem, we first consider the welfare-improving tariff reduction method under the condition. In the basic model, all distortions are assumed to be brought about by tariff system. The basic message from this model is that highest tariff should be removed at least to the second highest tariff rate. Second, we extend the basic model for allowing non-tradable goods and import quota system. The lesson from extended model is that if there includes import quota, difference between shadow price and world price should be used as "tariff" for quota commodities. For reduction of trade restriction, the basic message can also be applied. Both factors of production and products are treated symmetrically in this model, we do not achieve to develop a theoretical model which accounts for peculiarity of factor markets such as labor market segmentation. Therefore, we add some numerical evaluation of short run social cost for labor market adjustment by employing Input Output analysis in order to show the importance of factor market conditions.