INTEREST GROUPS AND ECONOMIC POLICY: EXPLAINING THE PATTERN OF PROTECTION IN THE BRAZILIAN AGRICULTURAL SECTOR

STEVEN M. HELFAND [*] This article examines the determinants of the pattern of protection across products in the Brazilian agricultural sector from 1969 to 1989. Three key determinants of policy are explored: interest group pressure, government objectives, and structural change associated with economic crisis and a change in political regime. The principal agricultural policies are analyzed, and nominal protection coefficients (NPCs) and producer subsidy equivalents (PSEs) are calculated. When NPCs are used as the dependent variable, econometric results indicate, that interest group characteristics such as group size were an important determinant of the pattern of protection. With PSEs, government efforts to raise tax revenues, generate foreign exchange, and control inflation played a more significant role. The results of this paper suggest that future studies of the political economy of protection should pay more attention to the specification of the dependent variable because the conclusions can depend crucially on this choice. (JEL 013, Q18) I. INTRODUCTION Developing countries tend to discriminate against their agricultural sectors, whereas developed countries usually subsidize them (Anderson and Hayami, 1986; Fulginiti and Shogren, 1992). Recent research has also shown that import competing commodities have fared somewhat better than exports in developing countries (Krueger, 1992; Schiff and Valdes, 1992). Implicit in this stylized scenario is that there must be an evolution from taxation to protection. The evolution, however, is likely to occur unevenly within the agricultural sector. This uneven process is investigated by studying the differentiated pattern of protection across agricultural products in one middle income country, Brazil, over a period of 20 years. Explanations for the policy shift from discrimination to protection of agriculture have focused on both structural features of the economy and the relative influence of the agricultural lobby. The structural arguments point to reduced opposition to price increases by consumers, industry, and government as agricultural goods decline in importance as a share of consumer expenditures, as the wage bill falls with increasing capital intensity of industry, and as food and agricultural commodity shares of inflation indices decline (Fafchamps et al., 1991; Anderson and Hayami, 1986). The collective action explanation hypothesizes that the relative influence of the agricultural lobby should increase as the costs of controlling free riding fall (Olson, 1965, 1986; Becker, 1983). One of the key factors that reduces organizational costs is the fall in the number of agricultural producers that tends to occur with development. The two approaches should be considered complementary because the structural changes that reduce opposition to agricultural protection contribute to the likely success of the agricultural lobby. The relative importance of these explanations is tested in this article. Most econometric studies of agricultural protection have used nominal protection coefficients as the dependent variable that measures the effects of direct policies on producers (David and Huang, 1996; Fulginiti and Shogren, 1992; Gardner, 1987). This paper differs by using producer subsidy equivalents as well. This is done for two reasons. First, the inclusion of credit subsidies in the dependent variable should be more important for Brazil than for most other countries. The results of an 18-country World Bank study on the political economy of agricultural pricing policy reveal that Brazil was the only country in which credit subsidies were of the same magnitude as export taxation. For the next largest subsidizer, Colombia, credit subsidies only represented a third of export taxation (Schiff and Valdes, 1992). Second, conclusions about the importance of interest group influence can depend crucially on the specification of a dependent variable that measures the impact of policies. …