CHANGES OF ECONOMIC STRUCTURE, INTEREST GROUPS AND AGRICULTURAL-TRADE PROTECTION: THE CASE OF CHINA

This paper seeks to explore the motivations behind agricultural trade-related support policies through extending the two-sector specific factor production model to three sectors to make the model more relevant for a one-party state such as China. This model suggests that the switch from taxing to subsidizing the agricultural sector depends not only on changes in the economy’s structure but, more critically, on the underlying political support from heterogeneous interest groups in the course of economic development. The equilibrium agricultural protection level is determined by equating the marginal political returns from supporting farmers with the marginal political costs from opposing groups (including manufacturers).