Impact of Agricultural Market Opening and Fiscal Investment and Loans

Abstract

In order to analyze the effect of market openness and fiscal investment & loan on economic performance indicators (real production value, real agricultural income, price volatility, and factor productivity) in the agricultural sector, we construct a panel dataset that includes the calculated index of openness for each product group (rice, fruits, vegetables, livestock) and the newly classified agricultural budget (fiscal investment & loan) by purpose and product-group during 1995~2019. This study estimates the system of equations established for each of the four performance indicators using the Seemingly Unrelated Regression (SUR) method and then compares the marginal effects of market openness and fiscal investment & loan on each performance indicator. Separate aggregation of these two key variables by product group gives sufficient observations to measure the causal relationship between economic performance and them, and the SUR method was selected to obtain efficient estimates if the error terms of each equation are correlated. Our empirical analysis shows that market openness acts in the direction of worsening all performance indicators, whereas fiscal investment & loan has a positive effect overall. In the face of further opening via RCEP and CPTPP, agricultural investment & loan in the future should be reorganized focusing on food security, rural maintenance, climate change and environment, and shared growth with related industries.