The Usefulness of General Equilibrium Modeling for Agricultural Economic Research

Over the last several decades the agricultural sector has become more integrated into the national and world economies. This development has given rise to an increasing demand for economy wide and/or global quantitative analyses of policies affecting the agricultural and agribusiness sector. In this context, applied general equilibrium models have received considerable attention, because they are able to provide an elaborate representation of the economy including the linkages between farming, agribusiness, industrial and service sectors of the economy.On one side, this complete coverage permits unique insights into the effects of a changing economic and political environment. One the other side, it also requires a tremendous effort to put together a comprehensive data base for general equilibrium models including a detailed agricultural disaggregation. For this reason the paper compares partial and general equilibrium models that are currently applied in agricultural economics. This comparison indicates that partial equilibrium models indeed include more agricultural sector detail. However, there are also exceptions like the general equilibrium model GTAP (Global Trade Analysis Project), which shows a detailed coverage of the agricultural and agribusiness sector as well. To further explore appropriate areas of applications of both types of models, the paper also compares partial and general equilibrium models using empirical examples. This is done on the basis of the GTAP model which can easily be converted into a partial equilibrium model. The general and partial variant of the GTAP model are employed to analyze a global and a sector liberalization of policies. Here, a comparison of the results shows that the general equilibrium framework is best suited to analyze global liberalisation, while the partial equilibrium model fails to acknowledge the supply response constrains imposed by fixed factor endowment. On contrast to that, the results of the partial and general variant of the GTAP model are very similar, when a sector liberalization is conducted. Therefore, the more flexible partial equilibrium approach appears to be advantageous for the analysis of sector specific policies. However, as global and sector policies always go together, the use of general equilibrium models in conjunction with partial equilibrium models seems to be the best way to go.