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When Banana Import Restrictions Lead to Exports: A Tale of Cyclones and Quarantine Policies

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  • Ko, Chia Chiun

    (University of Queensland)

  • Frijters, Paul

    ()
    (University of Queensland)

Abstract

This paper examines the welfare loss of import restrictions on bananas in Australia and whether the import restrictions have turned into a particular form of export promotion. We set up a model in which there is free domestic entry, with banana producers accepting losses in normal years, off-set by large profits in years when cyclones destroy a large proportion of the banana plants because of sufficiently low elasticity of demand. Using the cyclones of 2006 and 2011 as exogenous events, we identify the elasticity of demand for bananas in Australia to be around -0.5. We indeed find limited evidence for an ‘over-shooting’ in terms of the supply response after these cyclones, leading to positive exports years after cyclones have hit and re-planted banana plants have become productive. Combining the elasticity estimates with information on turnover, we get an estimated welfare loss of 600 million dollars per year due to banana import restrictions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7988.

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Length: 30 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:iza:izadps:dp7988

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Keywords: competition; import restrictions; exogenous shocks; instrumental variables; surplus;

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  1. Reza Oladi & John Gilbert, 2011. "Monopolistic Competition and North-South Trade," Working Papers 201101, Utah State University, Department of Economics and Finance.
  2. Jean-Marc Blazy & Alain Carpentier & Alban Thomas, 2011. "The willingness to adopt agro-ecological innovations: application of choice modelling to Caribbean banana planters," Working Papers 47483, Institut National de la Recherche Agronomique, France.
  3. Armando Garcia Pires, 2012. "International trade and competitiveness," Economic Theory, Springer, vol. 50(3), pages 727-763, August.
  4. Garcia Pires, Armando J., 2013. "Home market effects with endogenous costs of production," Journal of Urban Economics, Elsevier, vol. 74(C), pages 47-58.
  5. Anke Leroux & Donald Maclaren, 2011. "The Optimal Time to Remove Quarantine Bans Under Uncertainty: The Case of Australian Bananas," The Economic Record, The Economic Society of Australia, vol. 87(276), pages 140-152, March.
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