Structural Change and Agricultural Protection: Costs of Korean Agricultural Policy, 1975 and 1990

by Xishen Diao, John Dyck, David W. Skully, Agapi Somwaru, and Chinkook Lee

The economic development of South Korea is often considered a model for developing countries. We use 1975 and 1990 data in a general equilibrium framework with a highly disaggregated sector specification to evaluate the opportunity cost of its agricultural protection. We show that although agriculture's share of the gross domestic product (GDP) declined between 1975 and 1990, the cost of agricultural protection, as measured by the loss in GDP, did not fall. The larger gap between domestic and world prices for the protected sectors exacerbated the distortions in resource allocation. Simulated removal of 1990 agricultural border protection reduced the share of agricultural GDP to the level actually observed in 1996, demonstrating how protection can impede economic structural development. The public policy implication is for developing countries to adopt policies that help the agricultural sector become competitive. Otherwise, as in Korea, the resource costs of delaying adjustment grow over time.

Keywords: South Korea, food policy, agricultural development, computable general equilibrium, protectionism, trade liberalization, rural development

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