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GTAP Resource #3613

"Effects of the Rural Credit Interest Rate Equalization Policy on Brazilian Regions Economic Growth"
by Cardoso, Débora, Erly Teixeira, Angelo Gurgel and Eduardo Castro

Although the classic literature postulates that subsidies generate allocative and distributive inefficiencies and social cost, developed countries, especially the United States and the European Union insist on the maintenance of agriculture supporting policies. This pattern of expenditure raises the idea that agriculture production subsidies may have positive impacts on economic growth. In Brazil, the main agricultural subsidy is via rural credit through the Interest Rate Equalization police (ETJ) which covers the difference between the market interest rate and the rate provided to farmers. It is questioned whether the rural credit subsidy generates economic growth to all Brazilian regions. The objective of this paper is to determine the effects of the rural credit subsidy on the economies of the five Brazilian regions. The model, database and software from the General Equilibrium Analysis Project of the Brazilian Economy (PAEG) are applied to the simulations. Initially, a scenario is simulated in which the credit subsidy and the volume of credit lent to farmers through ETJ are eliminated. Later, a second scenario simulates that the rural credit subsidy is allocated to the transportation sector, in order to calculate its opportunity cost. The result shows that the IRE policy provides economic growth in the Midwestern, Northeastern and Southern regions above the cost of the policy. Besides, in the Northern and Southeastern regions, there is a decrease in the GDP. For Brazil, the policy is cost-effective and offers a 34% return. Furthermore, all regions benefit in terms of welfare. For the country, in terms of GDP or welfare, spending on the IRE has zero opportunity cost. The IRE policy is efficient and contributes to reducing regional disparities.

Resource Details (Export Citation) GTAP Keywords
Category: 2011 Conference Paper
Status: Published
By/In: Presented at the 14th Annual Conference on Global Economic Analysis, Venice, Italy
Date: 2011
Created: Teixeira, E. (4/15/2011)
Updated: Batta, G. (4/20/2011)
Visits: 2,085
- Domestic policy analysis
- Agricultural policies
- Economic growth
- Software and modeling tools
- Calibration and parameter estimation
- The GTAP Data Base and extensions
- South America

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