Can Trade Liberalization Have Environmental Benefits in Developing Counrty Agriculture? A Sri Lankan Case Study

Abstract

In an economy dominated by agriculture, trade policy reforms and associated changes may induce substantial reallocation of land between more and less erosive uses. However, the direction and magnitude of such a shift is difficult to predict due to the presence of existing policy distortions and of world market power in agricultural exports; moreover, changes occurring within agriculture may have economy-wide welfare effects through markets for factors and commodities. We use an applied general equilibrium model to evaluate and quantify the likely impacts of an across-the-board tariff reduction in Sri Lanka. In a related analysis, we examine the economic and environmental implications of technical progress in an important export sector, tea. We find that both types of change increase the demand for land in tea, a relatively less erosive sector, and thus have environmental as well as economic benefits for the Sri Lankan economy.