Debt overhangs and international agricultural trade

Having been one of the dominant issues in North-South relations for over a decade, the debt crisis is once again gaining prominence in international policy debates. This study seeks to examine the impacts of debt overhangs on agricultural trade. Using a partial equilibrium trade model of seven agricultural commodities, covering 10 developed and 20 developing regions, where debt impacts on supply, demand, and income, a number of simulations were performed. The empirical results indicate that across-the-board debt relief, in exchange for policy reforms in debtor nations, would produce positive trade benefits for international agricultural trade and increase world welfare levels by around US$2 billion in real terms. With regard to the appropriate levels of largess, it is found that low levels of reduction (less than 20%) can have negative impacts on world trade. with some support being apparent for higher levels of write-off, in the order of 70-100% of base period debt stocks. (C) 2001 Society for Policy Modeling. Published by Elsevier Science Inc.