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Food prices, wages, and welfare in rural India

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  • Jacoby, Hanan G.

Abstract

This paper considers the welfare and distributional consequences of higher relative food prices in rural India through the lens of a specific-factors, general equilibrium, trade model applied at the district level. The evidence shows that nominal wages for manual labor both within and outside agriculture respond elastically to increases in producer prices; that is, wages rose faster in rural districts growing more of those crops with large price run-ups over 2004-09. Accounting for such wage gains, the analysis finds that rural households across the income spectrum benefit from higher agricultural commodity prices. Indeed, rural wage adjustment appears to play a much greater role in protecting the welfare of the poor than the Public Distribution System, India's giant food-rationing scheme. Moreover, policies, like agricultural export bans, which insulate producers (as well as consumers) from international price increases, are particularly harmful to the poor of rural India. Conventional welfare analyses that assume fixed wages and focus on households'net sales position lead to radically different conclusions.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6412.

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Date of creation: 01 Apr 2013
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Handle: RePEc:wbk:wbrwps:6412

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Keywords: Markets and Market Access; Economic Theory&Research; Labor Policies; Agribusiness; Emerging Markets;

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  12. Ivanic, Maros & Martin, Will, 2008. "Implications of higher global food prices for poverty in low-income countries," Policy Research Working Paper Series 4594, The World Bank.
  13. Boyce, James K & Ravallion, Martin, 1991. "A Dynamic Econometric Model of Agricultural Wage Determination in Bangladesh," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(4), pages 361-76, November.
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  16. repec:hal:wpaper:halshs-00680451 is not listed on IDEAS
  17. Clément Imbert & John Papp, 2012. "Equilibrium Distributional Impacts of Government. Employment Programs: Evidence from India's Employment Guarantee," PSE Working Papers halshs-00680451, HAL.
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