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Food Prices and the Multiplier Effect of Export Policy

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Author Info

  • Paolo E. Giordani

    ()
    (Luiss "Guido Carli")

  • Nadia Rocha

    ()
    (World Trade Organization)

  • Michele Ruta

    ()
    (World Trade Organization)

Abstract

This paper studies the relationship between export policy and food prices. We show that, when individuals are loss averse, food exporters may use trade policy to shield the domestic economy from large price shocks. This creates a complementarity between the price of food in international markets and export policy. Speci?cally, unilateral actions by exporting countries give rise to a "multiplier e¤ect": when a shock in the international food market drives up (down) its price, governments respond by imposing export restrictions (subsidies), thus exacerbating the initial shock and soliciting further export activism. We test this theory with a new dataset that comprises monthly information on trade measures across 125 countries and 29 food products for the period 2008-10, ?nding evidence of a multiplier e¤ect. Global restrictions in a product (i.e. the share of international trade covered by export restrictions) are positively correlated with the probability of imposing a new export restriction on that product, especially for staple foods. Large exporters are found to be more reactive to restrictive measures, suggesting that the multiplier e¤ect is mostly driven by this group. Finally, we estimate that a 1 per cent surge in global restrictions increased international food prices by 1.1 per cent on average during 2008-10. These ?ndings contribute to inform the broader debate on the proper regulation of export policy within the multilateral trading system.

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Bibliographic Info

Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers LuissLab with number 1297.

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Date of creation: 2012
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Handle: RePEc:lui:lleewp:1297

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Keywords: Loss aversion; Export policy; Multiplier e¤ect; Food crisis; WTO;

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References

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  1. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers, Tel Aviv 21-92, Tel Aviv.
  2. Nuno Limão & Kamal Saggi, 2013. "Size Inequality, Coordination Externalities and International Trade Agreements," Vanderbilt University Department of Economics Working Papers 13-00013, Vanderbilt University Department of Economics.
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  12. Bouet, Antoine & Laborde Debucquet, David, 2010. "Economics of export taxation in a context of food crisis," IFPRI discussion papers 994, International Food Policy Research Institute (IFPRI).
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How the CAP contributes to world market food price volatility - by Alan Matthews
    by Alan Matthews in CAP Reform.eu on 2012-04-14 08:05:50
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Cited by:
  1. Jha, Shikha & Kubo, Kensuke & Ramaswami, Bharat, 2013. "International Trade and Risk Sharing in the Global Rice Market: The Impact of Foreign and Domestic Supply Shocks," ADB Economics Working Paper Series 372, Asian Development Bank.
  2. Christophe Gouel, 2013. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Working Papers 18934, National Bureau of Economic Research, Inc.
  3. Olga Solleder, 2013. "Trade Effects of Export Taxes," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 08-2013, Economics Section, The Graduate Institute of International Studies, revised 08 Apr 2013.

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