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The Missing Food Problem: How Low Agricultural Imports Contribute to International Income and Productivity Differences

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  • Trevor Tombe

Abstract

This paper finds an important relationship between the international food trade and cross-country income and productivity differences. Poor countries have low labour productivity in agriculture relative to other sectors, yet predominantly consume domestically-produced food. To understand these observations, I describe and exploit a general equilibrium model of international trade to: (1) measure sectoral productivity and trade costs across countries; and (2) quantify the impact of low poor-country food imports on international income and productivity gaps. Specifically, I expand on Yi and Zhang [2010] and modify an Eaton-Kortum trade model to incorporate multiple sectors, non-homothetic preferences, and labour mobility costs. With this model, I estimate PPP-adjusted productivity from observed bilateral trade data, avoiding problematic price and employment data in poor countries that direct output-per-worker estimates require. I find reasonable trade barriers and labour mobility costs account for the low poor-country imports despite their low productivity. Through various counterfactual experiments, I quantify how easing import barriers and labour mobility costs increases imports and within-agriculture specialization, shuts down low productivity domestic food producers, and lowers the gap between rich and poor countries. I also find an interaction between domestic labour-market distortions and trade barriers not found in the existing dual-economy literature, which largely abstracts from open-economy considerations. Overall, I account for one-third of the aggregate labour productivity gap between rich and poor countries and for nearly half the gap in agriculture.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-416.

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Length: 49 pages
Date of creation: 26 Nov 2010
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-416

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Keywords: Food Problem; Dual Economy Model; Trade; Agriculture; Productivity;

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