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The Economics of Fair Trade

Author

Listed:
  • Raluca Dragusanu
  • Daniele Giovannucci
  • Nathan Nunn

Abstract

Fair Trade is a labeling initiative aimed at improving the lives of the poor in developing countries by offering better terms to producers and helping them to organize. Although Fair Trade–certified products still comprise a small share of the market—for example, Fair Trade–certified coffee exports were 1.8 percent of global coffee exports in 2009—growth has been very rapid over the past decade. Whether Fair Trade can achieve its intended goals has been hotly debated in academic and policy circles. In particular, debates have been waged about whether Fair Trade makes "economic sense" and is sustainable in the long run. The aim of this article is to provide a critical overview of the economic theory behind Fair Trade, describing the potential benefits and potential pitfalls. We also provide an assessment of the empirical evidence of the impacts of Fair Trade to date. Because coffee is the largest single product in the Fair Trade market, our discussion here focuses on the specifics of this industry, although we will also point out some important differences with other commodities as they arise.

Suggested Citation

  • Raluca Dragusanu & Daniele Giovannucci & Nathan Nunn, 2014. "The Economics of Fair Trade," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 217-236, Summer.
  • Handle: RePEc:aea:jecper:v:28:y:2014:i:3:p:217-36
    Note: DOI: 10.1257/jep.28.3.217
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    References listed on IDEAS

    as
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    Cited by:

    1. Drichoutis, Andreas C. & Vassilopoulos, Achilleas & Lusk, Jayson L. & Nayga, Rodolfo M. Jr., 2015. "Reference dependence, consequentiality and social desirability in value elicitation: A study of fair labor labeling," 143rd Joint EAAE/AAEA Seminar, March 25-27, 2015, Naples, Italy 202705, European Association of Agricultural Economists.
    2. Jana Friedrichsen & Dirk Engelmann, 2017. "Who Cares about Social Image?," Discussion Papers of DIW Berlin 1634, DIW Berlin, German Institute for Economic Research.
    3. Ibanez, Marcela & Blackman, Allen, 2016. "Is Eco-Certification a Win–Win for Developing Country Agriculture? Organic Coffee Certification in Colombia," World Development, Elsevier, vol. 82(C), pages 14-27.
    4. Jaime DE MELO & Marcelo OLARREAGA, 2017. "Trade Related Institutions and Development," Working Papers P199, FERDI.
    5. repec:eee:indorg:v:57:y:2018:i:c:p:114-146 is not listed on IDEAS
    6. Jerome Ballet & Delphine Pouchain, 2018. "Fair Trade and the Fetishization of Levinasian Ethics," Cahiers du GREThA 2018-01, Groupe de Recherche en Economie Théorique et Appliquée.
    7. Pio Baake & Helene Naegele, 2017. "Competition between For-Profit and Industry Labels: The Case of Social Labels in the Coffee Market," Discussion Papers of DIW Berlin 1686, DIW Berlin, German Institute for Economic Research.
    8. repec:gam:jsusta:v:10:y:2018:i:5:p:1551-:d:146146 is not listed on IDEAS
    9. Drichoutis, Andreas C. & Vassilopoulos, Achilleas & Lusk, Jayson & Nayga, Rodolfo M., 2015. "Fair farming: Preferences for fair labor certification using four elicitation methods," MPRA Paper 62546, University Library of Munich, Germany.
    10. repec:eee:wdevel:v:102:y:2018:i:c:p:195-212 is not listed on IDEAS
    11. Grazyna Smigielska & Anna Dabrowska & Malgorzata Radziukiewicz, 2015. "Fair Trade in Sustainable Development. The Potential for Fair Trade Market Growth in Poland," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 17(Special 9), pages 1244-1244, November.
    12. Felgendreher, Simon, 2018. "Do consumers choose to stay ignorant? The role of information in the purchase of ethically certified products," Working Papers in Economics 717, University of Gothenburg, Department of Economics.
    13. Meemken, Eva-Marie & Spielman, David J. & Qaim, Matin, 2017. "Trading off nutrition and education? A panel data analysis of the dissimilar welfare effects of Organic and Fairtrade standards," Food Policy, Elsevier, vol. 71(C), pages 74-85.
    14. Durevall, Dick, 2015. "Are Fairtrade Prices Fair? An Analysis of the Distribution of Returns in the Swedish Coffee Market," HUI Working Papers 108, HUI Research.
    15. Bennett, Elizabeth A., 2017. "Who Governs Socially-Oriented Voluntary Sustainability Standards? Not the Producers of Certified Products," World Development, Elsevier, vol. 91(C), pages 53-69.
    16. repec:eee:ecolec:v:150:y:2018:i:c:p:72-87 is not listed on IDEAS
    17. Cai, Xiaoming, 2015. "Minimum prices in a model with search frictions and price posting," Economics Letters, Elsevier, vol. 135(C), pages 61-64.
    18. Minten, Bart & Dereje, Mekdim & Engeda, Ermias & Tamru, Seneshaw, 2014. "Who benefits from the rapidly increasing voluntary sustainability standards? Evidence from fairtrade and organic certified coffee in Ethiopia:," ESSP working papers 71, International Food Policy Research Institute (IFPRI).
    19. Van Loo, Ellen J. & Caputo, Vincenzina & Nayga, Rodolfo M. & Seo, Han-Seok & Zhang, Baoyue & Verbeke, Wim, 2015. "Sustainability labels on coffee: Consumer preferences, willingness-to-pay and visual attention to attributes," Ecological Economics, Elsevier, vol. 118(C), pages 215-225.
    20. Martha A. Starr, 2015. "The Economics of Ethical Consumption," Working Papers 2015-01, American University, Department of Economics.
    21. Sukhtankar, Sandip, 2016. "Does firm ownership structure matter? Evidence from sugar mills in India," Journal of Development Economics, Elsevier, vol. 122(C), pages 46-62.
    22. Herrell, Kevin M. & Tewari, Rachna & Mehlhorn, Joey, 2017. "Honduran Coffee Trade: Economic Effects of Fair Trade Certification On Individual Producers," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252729, Southern Agricultural Economics Association.
    23. repec:eee:ecolec:v:150:y:2018:i:c:p:290-296 is not listed on IDEAS
    24. Krumbiegel, Katharina & Maertens, Miet & Wollni, Meike, 2018. "The Role of Fairtrade Certification for Wages and Job Satisfaction of Plantation Workers," World Development, Elsevier, vol. 102(C), pages 195-212.
    25. Vlaeminck, Pieter & Vranken, Liesbet & Van Den Broeck, Goedele & Vande Velde, Katrien & Raymaekers, Karen & Maertens, Miet, 2015. "Farmers’ preferences for Fair Trade contracting in Benin," Working Papers 225931, Katholieke Universiteit Leuven, Centre for Agricultural and Food Economics.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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