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Rain, agriculture, and tariffs

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  • Bastos, Paulo
  • Straume, Odd Rune
  • Urrego, Jaime A.

Abstract

This paper examines whether and how rainfall shocks affect tariff setting in the agricultural sector. In a model of strategic trade policy, the authors show that the impact of a negative rainfall shock on optimal import tariffs is generally ambiguous, depending on the weight placed by the domestic policy maker on tariff revenue, profits and the consumer surplus. The more weight placed on domestic profits, the more likely it is that the policy maker will respond to a rainfall shortage by reducing import tariffs. These findings are robust to alternative assumptions about market structure and the timing of the game. Using detailed panel data on applied tariffs and rainfall for 70 nations, the authors find robust evidence that rainfall shortages generally induce policy makers to set lower tariffs on agricultural imports.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6394.

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Date of creation: 01 Mar 2013
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Handle: RePEc:wbk:wbrwps:6394

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Keywords: Agribusiness; Economic Theory&Research; Markets and Market Access; Free Trade; Science of Climate Change;

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  1. Kyle Bagwell & Robert W. Staiger, 2000. "Strategic Trade, Competitive Industries and Agricultural Trade Disputes," NBER Working Papers 7822, National Bureau of Economic Research, Inc.
  2. Markus Brückner & Antonio Ciccone, 2009. "Rain and the Democratic Window of Opportunity," Working Papers 2009-38, FEDEA.
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  16. Olivier Desch�nes & Michael Greenstone, 2007. "The Economic Impacts of Climate Change: Evidence from Agricultural Output and Random Fluctuations in Weather," American Economic Review, American Economic Association, American Economic Association, vol. 97(1), pages 354-385, March.
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