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The Fair Trade movement: an economic perspective

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  • Kadow, Alexander

Abstract

Fair Trade (FT) products such as coffee and textiles are becoming increasingly popular with altruistic consumers all over the world. This paper seeks to understand the economic effects of this grassroots movement which directly links ethically-minded consumers in industrialised countries with marginalised producers in developing economies. We extend the Ricardian trade model and introduce a FT sector in developing South that offers a fair wage – the FT premium. There are indeed positive welfare effects from FT but those come at the expense of rising inequalities within South which are in turn a rational by-product of FT. The degree of inequalities depends on the specifics of the cooperative structures in the FT sector. Given the rigidities and inequalities FT introduces and rests upon, this form of alternative trade appears to be only sustainable as niche movement.

Suggested Citation

  • Kadow, Alexander, 2011. "The Fair Trade movement: an economic perspective," SIRE Discussion Papers 2011-10, Scottish Institute for Research in Economics (SIRE).
  • Handle: RePEc:edn:sirdps:252
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    File URL: http://hdl.handle.net/10943/252
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    References listed on IDEAS

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    1. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
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    Cited by:

    1. Hannes Koppel & Günther Schulze, 2013. "The Importance of the Indirect Transfer Mechanism for Consumer Willingness to Pay for Fair Trade Products—Evidence from a Natural Field Experiment," Journal of Consumer Policy, Springer, vol. 36(4), pages 369-387, December.
    2. 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.
    3. Andrew Samuel & Fred W. Derrick & Charles Scott, 2014. ""Fair Trade," Market Failures, and (the Absence of) Institutions," Review of Social Economy, Taylor & Francis Journals, vol. 72(2), pages 209-232, June.

    More about this item

    Keywords

    Fair Trade; comparative advantage; wage premium; inequalities; ethical consumerism; cooperative;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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