Ulrich Koester, Professor of Agricultural Economics at Kiel University and IAMO Visiting Research Fellow paid a visit to ISET on May 30. During his presentation, Prof. Koester provided an overview of the specifics of the agricultural sector and its impact on agricultural trade; furthermore, he clarified that traditional trade theory is of minor relevance for explaining agricultural trade policies and trade flows.

Prof. Ulrich started his presentation by explaining the standard model of trade liberalization. He clarified that the theory behind this does not explicitly claim that ‘free trade is best’, and instead states that ‘given certain assumptions, it is best’. In line with traditional trade theory, the effect of changes in trade policy cannot be quantified correctly with a comparative-static analysis. Adjustment effects are the most important, especially the specifics of agricultural factors of production limit adjustment in the short and medium terms. In addition, changes in the whole economy are of the most importance, rather than those of one specific sector.

Prof. Koester emphasized the importance of institutions and institutional framework, saying that “rules make economic behavior predictable”. He explained that institutions are the main determinant of the efficiency of an economy and of growth, and they are important for the ability to adjust and for the competitiveness of the agricultural sector.

At the end of the presentation, Prof. Koester summarized the main messages and provided policy recommendations for Georgia:

• Market forces may not lead to optimal private production decisions from a social point of view; there remains a need for policy intervention.

• The political market for agricultural policymaking requires specific knowledge of researchers in this field and of policy advisers.

• Global experiences support the view that learning from others and education are the most important determinants of agricultural development. Development results from changes, starting with the minds of people (including policymakers) and with changes in organization and individual activities.

The presentation was followed by a Q&A session. ISET would like to thank Prof. Koester for providing a very interesting, topical, and timely presentation.