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Domestic Trade Frictions and Agriculture

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  • Sebastian Sotelo

Abstract

I develop a model of agriculture on heterogeneous land to study the relation between trade, productivity, and welfare in Peru, where farmers face high internal and external trade costs. I quantify the model with new data on crop prices, yields, and land allocations. I then measure the effects of changes to trade opportunities. A policy of paving roads raises aggregate productivity (4.9%) and the median farmer’s welfare (2.7%), but increased competition from remote suppliers harms 20% of farmers. An increase in international grain prices spreads unevenly across regions, benefiting farmers but hurting urban consumers close to ports.

Suggested Citation

  • Sebastian Sotelo, 2020. "Domestic Trade Frictions and Agriculture," Journal of Political Economy, University of Chicago Press, vol. 128(7), pages 2690-2738.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/706859
    DOI: 10.1086/706859
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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