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Estimating household responses to trade reforms : net consumers and net producers in rural Mexico

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  • Porto, Guido G.

Abstract

This paper explores an empirical methodology to assess the impacts of trade reforms on household behavior in developing countries. It focuses on consumption and income responses: when price reforms take place, households modify consumption and production decisions and local labor markets adjust. The paper proposes a joint estimator of demand and wage price elasticities from survey data. The method uses an empirical model of demand to extract price information from unit values, and uses this information to estimate the response of households to price reforms. By correcting unit values for quality effects and measurement error, the method overcomes the problem of the endogeneity of unit values. By endogeneizing household income, the model corrects potential biases in the estimation of own- and cross-price elasticities in consumption. The paper applies the method to an expenditure and income survey for rural Mexico. It shows that the corrections suggested in this paper are empirically important. In particular, it shows that allowing for consumption and income responses is a key element of an accurate empirical assessment of trade policy.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3695.

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Date of creation: 01 Sep 2005
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Handle: RePEc:wbk:wbrwps:3695

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Access to Markets; Markets and Market Access; Inequality;

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References

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  1. Deaton, Angus, 1990. "Price elasticities from survey data : Extensions and Indonesian results," Journal of Econometrics, Elsevier, vol. 44(3), pages 281-309, June.
  2. Anne Case & Angus Deaton, 1996. "Large Cash Transfers to the Elderly in South Africa," NBER Working Papers 5572, National Bureau of Economic Research, Inc.
  3. Eric V. Edmonds, 2007. "Child Labor," NBER Working Papers 12926, National Bureau of Economic Research, Inc.
  4. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  5. Ravallion, Martin, 1990. "Rural Welfare Effects of Food Price Changes under Induced Wage Responses: Theory and Evidence for Bangladesh," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 574-85, July.
  6. Deaton, A. & Grimard, F., 1992. "Demand Analysis and Tax Reform in Pakistan," Papers 85, World Bank - Living Standards Measurement.
  7. Deaton, A., 1988. "Quality, Quantity, And Spatial Variation Of Price," Papers 30, World Bank - Living Standards Measurement.
  8. Guido G. Porto, 2003. "Using survey data to assess the distributional effects of trade policy," Policy Research Working Paper Series 3137, The World Bank.
  9. Edmonds, Eric V. & Pavcnik, Nina, 2005. "The effect of trade liberalization on child labor," Journal of International Economics, Elsevier, vol. 65(2), pages 401-419, March.
  10. Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 7-30.
  11. Nicita, Alessandro, 2009. "The price effect of tariff liberalization: Measuring the impact on household welfare," Journal of Development Economics, Elsevier, vol. 89(1), pages 19-27, May.
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Cited by:
  1. Nicita, Alessandro, 2009. "The price effect of tariff liberalization: Measuring the impact on household welfare," Journal of Development Economics, Elsevier, vol. 89(1), pages 19-27, May.
  2. Isik-Dikmelik, Aylin, 2006. "Trade reforms and welfare : an ex-post decomposition of income in Vietnam," Policy Research Working Paper Series 4049, The World Bank.
  3. Lederman, Daniel, 2011. "International trade and inclusive growth : a primer for busy policy analysts," Policy Research Working Paper Series 5886, The World Bank.
  4. Charles Ackah, & Simon Appleton, . "Food Price Changes and Consumer Welfare in Ghana in the 1990s," Discussion Papers 07/03, University of Nottingham, CREDIT.
  5. Klytchnikova, Irina & Diop, Ndiame, 2006. "Trade reforms, farm productivity, and poverty in Bangladesh," Policy Research Working Paper Series 3980, The World Bank.

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