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Short Run Effects of International Agricultural Commodity Price Shocks in Mexico

Author

Listed:
  • Edgardo Arturo Ayala Gaytán

    () (Profesor de planta, Departamento de Economía ITESM, Campus Monterrey, Monterrey, N.L. Mexico.)

  • Joana Cecilia Chapa Cantú

    () (Profesora de tiempo completo, Facultad de Economía y Centro de Investigaciones Económicas, Universidad Autónoma de Nuevo León, Monterrey, N.L. Mexico.)

Abstract

We formulate an extended input-output price model to analyze the short run effects of the international commodity price shocks in Mexico. The model includes 51 productive sectors, two labor inputs (urban and rural), one capital input, 10 final goods and 20 households (urban and rural income groups). Once we take into account the links between agricultural and industrial products, the commodity price shocks increase the general index of the cost of living by 1.3 per cent. Without considering any income effect, the poorer the family the higher the negative price effect is on consumption demand. But once we incorporate the higher profitability of the major crops, the net welfare of rural families rises. Finally, contrary to the common belief, indexing wages to prices to protect individuals from a higher cost of living hurts the poorest families.

Suggested Citation

  • Edgardo Arturo Ayala Gaytán & Joana Cecilia Chapa Cantú, 2011. "Short Run Effects of International Agricultural Commodity Price Shocks in Mexico," Economía Mexicana NUEVA ÉPOCA, , vol. 0(2), pages 311-355, July-Dece.
  • Handle: RePEc:emc:ecomex:v:20:y:2011:i:2:p:311-355
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    More about this item

    Keywords

    input-output model; commodities prices; income distribution; welfare.;

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D60 - Microeconomics - - Welfare Economics - - - General

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