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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
    1. Raynolds, Laura T., 2009. "Mainstreaming Fair Trade Coffee: From Partnership to Traceability," World Development, Elsevier, vol. 37(6), pages 1083-1093, June.
    2. Beuchelt, Tina D. & Zeller, Manfred, 2011. "Profits and poverty: Certification's troubled link for Nicaragua's organic and fairtrade coffee producers," Ecological Economics, Elsevier, vol. 70(7), pages 1316-1324, May.
    3. repec:feb:natura:0061 is not listed on IDEAS
    4. Bacon, Christopher, 2005. "Confronting the Coffee Crisis: Can Fair Trade, Organic, and Specialty Coffees Reduce Small-Scale Farmer Vulnerability in Northern Nicaragua?," World Development, Elsevier, vol. 33(3), pages 497-511, March.
    5. Oeindrila Dube & Suresh Naidu, 2010. "Bases, Bullets, and Ballots: The Effect of U.S. Military Aid on Political Conflict in Colombia," Working Papers 197, Center for Global Development.
    6. Chris Arnot & Peter C. Boxall & Sean B. Cash, 2006. "Do Ethical Consumers Care About Price? A Revealed Preference Analysis of Fair Trade Coffee Purchases," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(4), pages 555-565, December.
    7. Kadow, Alexander, 2011. "The Fair Trade movement: an economic perspective," SIRE Discussion Papers 2011-10, Scottish Institute for Research in Economics (SIRE).
    8. Weber, Jeremy G., 2011. "How much more do growers receive for Fair Trade-organic coffee?," Food Policy, Elsevier, vol. 36(5), pages 677-684, October.
    9. Jens Hainmueller & Michael J. Hiscox & Sandra Sequeira, 2015. "Consumer Demand for Fair Trade: Evidence from a Multistore Field Experiment," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 242-256, May.
    10. Elder, Sara D. & Zerriffi, Hisham & Le Billon, Philippe, 2012. "Effects of Fair Trade Certification on Social Capital: The Case of Rwandan Coffee Producers," World Development, Elsevier, vol. 40(11), pages 2355-2367.
    11. Arnould, Eric & Plastina, Alejandro & Ball, Dwayne, 2009. "Does Fair Trade Deliver on Its Core Value Proposition? Effects on Income, Educational Attainment, and Health in Three Countries," Staff General Research Papers Archive 39169, Iowa State University, Department of Economics.
    12. Benjamin Crost & Joseph Felter & Patrick Johnston, 2014. "Aid under Fire: Development Projects and Civil Conflict," American Economic Review, American Economic Association, vol. 104(6), pages 1833-1856, June.
    13. Ruben, Ruerd & Fort, Ricardo, 2012. "The Impact of Fair Trade Certification for Coffee Farmers in Peru," World Development, Elsevier, vol. 40(3), pages 570-582.
    14. Shareen Hertel & Lyle Scruggs & C. Patrick Heidkamp, 2007. "Human Rights and Public Opinion: From Attitudes to Action," Economic Rights Working Papers 3, University of Connecticut, Human Rights Institute, revised Apr 2008.
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    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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