Forms of Democracy and Agricultural Policy Outcomes

Alessandro Olper and Valentina Raimondi

III Workshop PUE&PIEC Treia, Macerata 3 - 4 Febbraio 2010

Introduction and objectiveWe study how reforms in political

institutions affect agricultural protection

Three main research questions1. Does a reform into democracy affect the level

of agricultural protection ? 2. Is this relationship conditional to the particular

forms/details of democracy ?3. 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 literaturePolitical 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 literatureSome 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 addedThis 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

• Strong level differences in NRA across democracies vs autocracies• The differences are decreasing for exportable but increasing for importable sectors

-.50

.51

NR

A

1960 1970 1980 1990 2000 2010year

Democracy

Autocracy

Agricultural products

-.50

.51

1960 1970 1980 1990 2000 2010year

Democracy

Autocracy

Exportable products

-.50

.51

1960 1970 1980 1990 2000 2010year

Democracy

Autocracy

Importable products

Smoothed average NRAs, and their 95% confidence interval

A preliminary look of the data

•Agricultural protection (NRA)•Electoral rules: proportional vs. majoritarian

-.20

.2.4

.6N

RA

1960 1970 1980 1990 2000 2010year

Proportional

Majoritarian

-.20

.2.4

.6

1960 1970 1980 1990 2000 2010year

Proportional

Majoritarian

-.20

.2.4

.6

1960 1970 1980 1990 2000 2010year

Proportional

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

Smoothed average NRAs, and their 95% confidence interval

-.20

.2.4

.6N

RA

1960 1970 1980 1990 2000 2010year

Parlamentary

Presidential

-.20

.2.4

.6

1960 1970 1980 1990 2000 2010year

Parlamentary

Presidential

-.20

.2.4

.6

1960 1970 1980 1990 2000 2010year

Parliamentary

Presidential

Agricultural products Exportable products Importable products

• 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 ...

t,iktikt,ift,i

ft,ik εθαXρSβy ++++=

(1) (2) (3) (4) (5) (6) (5)

Democracy 6.994* 6.649 11.696*** 12.724*** 9.493** 8.135** 3.184**(4.188) (4.528) (3.329) (4.174) (4.127) (3.738) (1.295)

Log GDP per capita 19.151*** 19.268*** 21.069** 30.640*** 35.160*** 29.724*** 12.951***(3.463) (3.446) (9.318) (12.241) (11.945) (9.426) (3.234)

Employment share -75.92 -58.89 -13.17(58.779) (48.596) (14.222)

Land per-capita -0.669 -1.865 -0.482(1.013) (1.134) (0.304)

Log population 29.407* -50.11 -2.86(15.343) (31.604) (8.524)

Conflicts 0.272 0.287 1.685(2.374) (2.191) (1.120)

Lagged NRA 0.717***(0.026)

Years fixed effects No Yes No Yes Yes Yes YesCountry fixed effects No No Yes Yes Yes Yes YesContinental trends No No No No No Yes Yes

Observations 2671 2671 2671 2671 2535 2535 2535Countries 74 74 74 74 74 74 74R squared (within) 0.371 0.398 0.105 0.206 0.263 0.391 0.704

Difference in Difference estimatesEstimation OLS Time FE Country FE

Results • Democracy and agric protection: Baseline results

Regression (1) (2) (3) (4) (5) (6)

Democracy 4.430*** 3.761*** 7.013*** 6.058*** 1.794 2.288**(0.870) (0.818) (1.814) (1.887) (1.215) (1.180)

Lagged NRA 0.696*** 0.693*** 0.671*** 0.669*** 0.588*** 0.580***(0.0155) (0.0159) (0.0166) (0.0168) (0.0369) (0.0358)

Log GDP per-capita 12.44*** 12.06*** 19.59*** 16.56*** 8.897*** 12.79***(2.540) (2.146) (5.522) (5.007) (2.869) (2.729)

Continent-year dummies No Yes No Yes No YesYear fixed effects Yes Yes Yes Yes Yes YesCountry-sector fixed effects Yes Yes Yes Yes Yes YesObservations 25301 25301 13045 13045 9355 9355Number of countries 74 74 74 74 74 74R2 (within) 0.560 0.572 0.593 0.605 0.422 0.434

All sectors Import-competing Exportables

Results

• Democracy and agric protection at sectors level

Robust standard errors clustered by country-sectors in parentheses; ***p < .01; **p < .05; *p < .10.

Regression (1) (2) (3) (4)

Grains and tubers Livestock products Oilseeds Tropical Crops

Democracy 5.692*** 1.102 4.772* 2.513(1.238) (3.717) (2.739) (1.943)

Lagged NRA 0.653*** 0.698*** 0.698*** 0.662***(0.0336) (0.0227) (0.0468) (0.0327)

Log GDP per-capita 15.97*** 10.33* 25.61** 7.555*(3.913) (6.265) (10.03) (4.484)

Continent-year dummies Yes Yes Yes YesYear fixed effects Yes Yes Yes YesCountry-sector fixed effects Yes Yes Yes YesObservations 8758 6785 2456 3791R2 (within) 0.563 0.662 0.675 0.676

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.

Regression (1) (2) (3) (4) (5) (6)

Parliamentary (PARL) 2.73 5.15 0.33(1.75) (4.16) (1.91)

Presidential (PRES) 3.99*** 6.23*** 3.11**(0.89) (2.02) (1.28)

Proportional (PROP) 6.18*** 9.24*** 3.78**(1.42) (2.66) (1.83)

Majoritarian (MAJ) 1.82** 2.82 1.35(0.92) (2.27) (1.18)

Year fixed effects Yes Yes Yes Yes Yes YesCountry-sector fixed effects Yes Yes Yes Yes Yes YesObservations 24976 24976 12978 12978 9229 9229R2 (within) 0.57 0.57 0.61 0.61 0.44 0.44

All sectors Import-competing Exportables

Results • Forms of democracy and agric protection

Robust standard errors clustered by country-sectors in parentheses; ***p < .01; **p < .05; *p < .10.

Regression (1) (2) (3) (4) (5) (6) (7) (8)

Parliamentary (PARL) 2.26 8.75* -0.93 5.09(3.00) (5.19) (3.34) (4.55)

Presidential (PRES) 6.67*** -2.53 6.59* 1.71(1.43) (3.85) (3.63) (1.74)

Proportional (PROP) 8.25*** 1.31 12.70** 3.71(2.37) (4.36) (6.52) (3.35)

Majoritarian (MAJ) 3.64** 0.41 0.28 1.70(1.64) (4.40) (2.79) (1.73)

Year fixed effects Yes Yes Yes Yes Yes Yes Yes Yes Country-sector FE Yes Yes Yes Yes Yes Yes Yes Yes Observations 8608 8608 6759 6759 2456 2456 3708 3708R2 (within) 0.57 0.57 0.67 0.67 0.70 0.70 0.69 0.69

Tropical Crops Grains and tubers Livestock products Oilseeds

Discussion and interpretation• How this evidence fit theoretical

predictions ? 1. 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%

2. 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

3. 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)

4. 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

All Importable ExportableDemocracy 3.761*** 6.058*** 2.288**

Lagged NRA 0.693*** 0.669*** 0.580***

Log GDP per capita 12.06*** 16.56*** 12.79***

Employment share -28.84** -47.14* -13.39

Land per-capita -0.239 -0.931 0.448**

Log population 8.532 -3.571 15.30

Sector share -1.766*** -4.263*** -0.988***

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 3. India vs China agri protection pattern

– This it is a very good point and we need to add some discussion about it

–

-100.0

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

India_NRA India_RRA China_NRA China_RRA

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

spendingGovernment

spending (distribution)

Proportionalvs.

Majoritarian

Parliamentary vs.

Presidential

Overall level +(-) +

Composition Broad

vs. Target

Broad vs.

TargetSource: 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