Then two policies are tested under an exchange rate depreciation to see how each policy regime reacts. The simulations demonstrate that in a static situation, lump sum payments are preferred to the system of subsidies and price supports. In the event of a negative external shock, the simulations suggest that the old system performs better in terms of output and rural production. However, urban households are worse off, and their size in total population may make this an unattractive policy. Download full-text discussion paper .
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