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Food prices and the multiplier effect of trade policy

Author

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  • Giordani, Paolo E.
  • Rocha, Nadia
  • Ruta, Michele

Abstract

This work studies the relationship between trade policy and food prices. We show that when individuals are loss averse, governments may use trade policy to shield the domestic economy from large food price shocks. This creates a complementarity between the price of food in international markets and trade policy. Specifically, unilateral actions give rise to a “multiplier effect”: when a shock drives up the price of food, exporters respond by imposing restrictions, while importers wind down protection, thus exacerbating the initial shock and soliciting further trade policy activism. We test the key prediction of the theory with a new dataset that comprises monthly information on trade measures across 77 countries and 32 food products for the period 2008–11, finding evidence of a multiplier effect in food trade policy. These findings contribute to inform the broader debate on the proper regulation of food trade policy within the multilateral trading system.

Suggested Citation

  • Giordani, Paolo E. & Rocha, Nadia & Ruta, Michele, 2016. "Food prices and the multiplier effect of trade policy," Journal of International Economics, Elsevier, vol. 101(C), pages 102-122.
  • Handle: RePEc:eee:inecon:v:101:y:2016:i:c:p:102-122
    DOI: 10.1016/j.jinteco.2016.04.001
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    Cited by:

    1. repec:ksp:journ1:v:4:y:2017:i:3:p:263-274 is not listed on IDEAS
    2. Tony Addison & Atanu Ghoshray & Michalis P. Stamatogiannis, 2016. "Agricultural Commodity Price Shocks and Their Effect on Growth in Sub-Saharan Africa," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(1), pages 47-61, February.
    3. Christophe Gouel, 2016. "Trade Policy Coordination and Food Price Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(4), pages 1018-1037.
    4. Wenshou Yan, 2016. "Political Economy of Trade and Storage Policies Coordination, and the Role of Domestic Public Storage in the World Market," School of Economics Working Papers 2016-16, University of Adelaide, School of Economics.
    5. Carmen Estrades & Manuel Flores & Guillermo Lezama, 2017. "The Role of Export Restrictions in Agricultural Trade," Documentos de Trabajo (working papers) 0417, Department of Economics - dECON.
    6. Wenshou Yan, 2016. "Geographic Politics, Loss Aversion, and Trade Policy: The Case of Cotton and China," School of Economics Working Papers 2016-15, University of Adelaide, School of Economics.
    7. Eyal RONEN, 2017. "Quantifying the trade effects of NTMs: A review of the empirical literature," Journal of Economics and Political Economy, KSP Journals, vol. 4(3), pages 263-274, September.
    8. Estrades, Carmen, 2015. "The Role of Export Restrictions in Agriculture Trade," 2015: Trade and Societal Well-Being, December 13-15, 2015, Clearwater Beach, Florida 229229, International Agricultural Trade Research Consortium.
    9. Ederington,Josh & Ruta,Michele, 2016. "Non-tariff measures and the world trading system," Policy Research Working Paper Series 7661, The World Bank.

    More about this item

    Keywords

    Loss aversion; Trade policy; Multiplier effect; Food crisis;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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