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Impact of global cotton markets on rural poverty in Benin

  • Minot, Nicholas
  • Daniels, Lisa

World cotton prices have fallen by about 40 percent over the last two years, focusing attention on the effect of subsidies for cotton growers in depressing prices. This paper combines farm survey data from Benin with assumptions about the decline in farm-level prices to estimate the direct and indirect effects of cotton price reductions on rural income and poverty in Benin. The results indicate that there is a strong link between cotton prices and rural welfare in Benin. A 40 percent reduction in farm-level prices of cotton results in an increase in rural poverty of 8 percentage points in the short-run and 6-7 percentage points in the long run. Based on the estimated marginal propensity to consume tradable goods, the consumption multiplier is in the range of 3.3, meaning that one dollar of reduced spending by cotton growers results in a contraction of 3.3 dollars in overall demand. Finally, econometric analysis of the determinants of the demand for hired agricultural labor suggests that falling cotton prices will not greatly reduce labor demand since the labor intensity of cotton is similar to that of competing crops in Benin. Overall, the study highlights the link between rising subsidies for cotton growers in the U.S. and rural poverty in cotton exporting countries such as Benin.

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Paper provided by International Food Policy Research Institute (IFPRI) in its series MSSD discussion papers with number 48.

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Date of creation: 2002
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Handle: RePEc:fpr:mssddp:48
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  2. Minot, Nicholas, 2000. "Generating Disaggregated Poverty Maps: An Application to Vietnam," World Development, Elsevier, vol. 28(2), pages 319-331, February.
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  8. Awudu Abdulai & Christopher Delgado, 2000. "An Empirical Investigation of Short- and Long-run Agricultural Wage Formation in Ghana," Oxford Development Studies, Taylor & Francis Journals, vol. 28(2), pages 169-185.
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  10. Delgado, Christopher L. & Rosegrant, Mark W. & Steinfeld, Henning & Ehui, Simeon K. & Courbois, Claude, 1999. "The growing place of livestock products in world food in the twenty-first century," MTID discussion papers 28, International Food Policy Research Institute (IFPRI).
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  13. Minot, Nicholas, 1999. "Effects of transaction costs on supply response and marketed surplus," MTID discussion papers 36, International Food Policy Research Institute (IFPRI).
  14. Goletti, Francesco & Minot, Nicholas, 1997. "Rice markets, agricultural growth, and policy options in Viet Nam," MTID discussion papers 14, International Food Policy Research Institute (IFPRI).
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  20. Ngqangweni, Simphiwe, 1999. "Rural growth linkages in the Eastern Cape Province of South Africa," MTID discussion papers 33, International Food Policy Research Institute (IFPRI).
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  24. Rashid, Shahidur, 2002. "Dynamics of agricultural wage and rice price in Bangladesh," MTID discussion papers 44, International Food Policy Research Institute (IFPRI).
  25. Minot, Nicholas & Kherallah, Mylène & Berry, Philippe, 2000. "Fertilizer market reform and the determinants of fertilizer use in Benin and Malawi," MTID discussion papers 40, International Food Policy Research Institute (IFPRI).
  26. Holloway, Garth & Nicholson, Charles & Delgado, Chris & Staal, Steve & Ehui, Simeon, 2000. "Agroindustrialization through institutional innovation: Transaction costs, cooperatives and milk-market development in the east-African highlands," Agricultural Economics, Blackwell, vol. 23(3), pages 279-288, September.
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