Developing Countries' Policy Responses to Food Price Boom and Biofuel Policies

Economists have been unanimous that developing countries’ policy response in restricting exports and promoting imports increased both world price levels and volatility. Furthermore, the literature emphasizes the self-defeating aspects of policy responses, as more exporters restrict exports and importers encourage more imports, world prices increase even further, thereby raising domestic prices in the same countries imposing the policy responses to protect domestic consumers. Because of the crop-biofuel price linkages, we show that developing countries’ policy responses had little impact on world prices in 2008 and a maximum impact in reducing domestic price in developing countries. There is little evidence of “standing up in the stadium” effects. Given that most studies on developing countries’ policy response analyze the impacts on poverty in developing countries, this paper highlights the importance of our framework for that analysis.