Treia, Macerata 3 - 4 Febbraio 2010 Forms of Democracy and Agricultural Policy Outcomes Alessandro Olper and Valentina Raimondi III Workshop PUE&PIEC Treia, Macerata 3 - 4 Febbraio 2010

Introduction and objective We study how reforms in political institutions affect agricultural protection Three main research questions Does a reform into democracy affect the level of agricultural protection ? Is this relationship conditional to the particular forms/details of democracy ? Are the reform effects heterogeneous across different agricultural sectors ?

Main results A democratization episode increase (decrease) agr protection (taxation) by about 3-4% points This effect jump to 6-7% for transition toward proportional democracy, (0% for majoritarian) No significant differences across forms of government (presidential vs. parliamentary), although presidential democracy often significant Import-competing sectors and staple food crops are largely more sensitive to institutionally induce policy changes

Outline Related literature and value added Data Econometric approach Results Discussion and interpretation Limitations

Related literature Political institutions and policy outcomes Aggregated Cross-country studies: democracy/autocracy similar policies: Mulligan et al (2004)... forms of democracy matter: Milesi-Ferretti et al (2002), Persson and Tabellini (2003, 2004) ... Aggregated Panel data studies: democratization induce more liberal trade policies: Milner and Kubota (2005), Giavazzi and Tabellini 2005) ... however, forms of democracy still matter, in line with cross-country evidence: Persson (2005), Persson and Tabellini (2006) Agricultural protection studies: democracy weak/or non linear effect: Beghin and Kherallah (1994), Swinnen et al (2000, 2001), Olper (2001, 2007)

Related literature Some limits of previous evidence Agr policy papers weak link with theory difficulty to understand the underline mechanism all papers but one (Swinnen et al 2001) exploit ‘only’ the cross-country variation in the data raising several identification issues Aggregated trade policy papers poor measure of trade protection (mainly the Sachs-Warner index) results are sensitive to the openness index used (see Tavares, 2007)

Main value added This paper Better measures of (agr) trade policy: Tariff equivalent of all distortions (World Bank Agdistortions data) large panel: 74 countries/1955-2005, many commodities More robust econometric approach difference-in-difference regressions less strong identification hypotheses Focus on: democratization effects (political reforms) forms of democracy (electoral rules and government systems) ‘sector’ heterogeneity (importable vs. exportable; staple food crops...tropical crops, etc.)

Outline Related literature and value added Data Econometric approach Results Discussion and interpretation

Data on political reforms Democratic reforms (Polity IV dataset) We define a binary indicator democracy = 1, in each country-year where Polity2 > 0 (0 otherwise) A reform into (or out of) democracy occurs when democracy switches from 0 to 1, and vice versa (overall 66 reforms: 41 into, 25 out of) Forms of democracy (P&T 2003; DPI ...) Government systems: presidential (pres = 1; 0 otherwise) and parliamentary (parl = 1; 0...) Electoral rules: majoritarian (maj = 1; 0...) and proportional (prop= 1; 0...) Interacting the democracy dummy with forms of democracy dummies we can test for heterogeneity in reform effects

Dependent variable and controls Dependent variable (World Bank) Nominal rate of assistance (NRA) at product level It is like a tariff equivalent, and is positive when agriculture is subsidized, negative when it is taxed, 0 when net transfers are zero Other controls (World Bank, FAO...) Lagged dependent variable (+) Log per capita GDP (+) Agric labour share (-) Land per capita (+) Log of population (+) Conflict dummies (?) Sectoral share (+/-) Sample 74 countries, many sectors, 1955-2005 period: > 25,000 obs.

A preliminary look of the data Agricultural protection (NRA) democracies vs. autocracies Smoothed average NRAs, and their 95% confidence interval Strong level differences in NRA across democracies vs autocracies The differences are decreasing for exportable but increasing for importable sectors

A preliminary look of the data Agricultural protection (NRA) Electoral rules: proportional vs. majoritarian Agricultural products Exportable products Importable products Smoothed average NRAs, and their 95% confidence interval Proportional democracies protect more than majoritarian democracies The differences are increasing overall and for importable sectors

A preliminary look of the data Agricultural protection (NRA) Government types: parliamentary vs. presidential Agricultural products Exportable products Importable products Smoothed average NRAs, and their 95% confidence interval Parliamentary democracies protect more than presidential democracies However, the differences are strongly decreasing over time, especially for importable

Outline Related literature and value added Data Econometric approach Results Discussion and interpretation

Empirical approach Difference-in-difference specification Our focus is on the coefficient  f It measures the reform effect by comparing the change in protection before-after transition to the change in protection in the control group (countries with no reforms) Identification issues Absent any regime change, protection growth should be similar across treated and controls countries... No heterogeneity of regime change effects. Differently the unexplained component of protection, ki,t, also includes the term (i,t – ) Si,t ...

Results Democracy and agric protection: Baseline results

Results Democracy and agric protection at sectors level Robust standard errors clustered by country-sectors in parentheses; ***p < .01; **p < .05; *p < .10.

Results Democracy and agric protection at sectors level Robust standard errors clustered by country-sectors in parentheses; ***p < .01; **p < .05; *p < .10.

Results Forms of democracy and agric protection Robust standard errors clustered by country-sectors in parentheses; ***p < .01; **p < .05; *p < .10.

Results Forms of democracy and agric protection Robust standard errors clustered by country-sectors in parentheses; ***p < .01; **p < .05; *p < .10.

Discussion and interpretation How this evidence fit theoretical predictions ? Democratization: the positive effect on protection is consistent with the median voter model (Lindert 1994, Acemoglu and Robinson 2000, Swinnen et al 2001) in countries undergoing democratic transitions, average and median share of agr population is higher than 50% Electoral rules: the strong effect of proportional democracies is fully consistent with theory theory predicts that proportional democracies (vs. maj) have larger gov speding, and larger transfers to broad groups (Persson and Tabellini 2003; Persson et al 2007)

Discussion and interpretation Forms of government: the ‘stronger’ effect of presidential democracies (vs. parliamentary) is contrary to theory presidential countries should have lower gov. spending and smaller transfers to broad groups (Persson, Roland and Tabellini 1997, 2000) Sectoral heterogeneity: import-competing sectors and staple food crops are more sensitive to institutionally induce policy changes probably because farmers in these ‘sectors’ are higher in number, have income close to the median, and/or are more able to form effective coalitions We need further work to better understand these hypotheses

Conclusion and limitations Is the observed association between forms of democracy and agricultural protection causal ? We believe yes... However it is also possible that reverse causation are at work e.g. if constitutions are the endogenous outcomes of expected redistributive policies (see Ticchi and Vindigni 2009)

Conclusion and limitations This rise potential issues Countries with low assets inequality more likely to make transitions to proportional democracy (OECD) Center-left government are more frequents in proportional democracies (OECD) Then proportional rule effects could be confounded with center-left redistributive effects Difficult to test ... but previous evidence goes in the opposite direction (Olper 2007) ...

Thank you

Other results Estimated effect of other covariates with country-sector fixed effects included, sector share variable may only capture within country variation namely declining sectors are every where more protected !!

Other results India vs China agri protection pattern This it is a very good point and we need to add some discussion about it

Theory and testable hypotheses Forms of democracy and public policies Persson&Tabellini (2000, 2003); Grossman&Helpman (2005) ... Alternative constitutional rules have different combinations of two key attributes: Accountability and representativness Majoritarian rule: (+) accountability (-) representativness (vis a vis proportional rule) Presidential system: (+) accountability (-) representativness (vis a vis parliamentary system) Different rules generate different political incentives and thus different policy outcomes...

Theory and testable hypotheses Predictions about government spending Government spending (distribution) Proportional vs. Majoritarian Parliamentary Presidential Overall level +(-) + Composition Broad Target Source: adapted from Persson and Tabellini (2003...)

Theory and testable hypotheses Implications for agricultural protection Prediction about the level of spending ‘translate directly’ to agr policy Predictions about composition of spending need further qualifications agric protection will be a broad or a narrow form of redistribution depending on the role agricultural voters play in total voters In the data set variation in constitutional rules came from countries with agr labor share > 50% Thus in our context agric protection have to be considered a broad form of redistribution

Theory and testable hypotheses Summarizing H1. A transition into democracy should affects positively agricultural protection, but its magnitude should be conditional to the forms of democracy H2. A reform into a parliamentary democracy, as opposed to presidential, should result in a greater increase in agric protection H3. A Reform into a proportional democracy, as opposed to majoritarian, should result in a greater increase in agric protection