Evaluating the disincentive effect of PL-480 food aid; the Indian case reconsidered

Agricultural Trade Development and Assistance Act of l954, Public Law 480 (PL480). A "disincentive effect" is created which, under the assumption of a positive supply elasticity, results in a decline in domestic food production. The effect upon development in the agricultural sector is therefore negative. This paper develops an improved econometric model which can be employed to calculate the disincentive effect. The question of the wider relevance of this type of analysis for policy purposes is also considered. Previous quantitative models by Mann, Rogers, Srivastava and Heady, and Barnum are reviewed. The specification of a new model is discussed under the following headings: supply, demand, income generation, market-balancing (imports and stocks), and identities. The model was estimated for the period l952-68, which was chosen to provide the maximum complete data length for pre-green revolution conditions. This ensures structural similarity to the sample periods used in previous models. The results are presented and discussed in detail. The model of the Indian cereals market developed in this paper appears to lend support to the argument by Schultz (l960) that food aid may not have a universally beneficial impact upon a recipient nations"s economy.