Distributional impact of political violence : evidence from differential impacts on commodity price

The economic cost of political violence is well documented, studying its effect on a myriad of economic indicators such as manufacturing productivity, export performance, comparative advantage, cost of production, etc. While these are very important issues capturing largely long run effect of the political violence, short run welfare loss of the citizen due to political instability is mostly absent from the literature. One salient channel through which political instability impacts welfare is the price of essential food items. Our study uses political strikes of Bangladesh to examine its impact on rice price. We particularly use three types of rice – fine, medium and coarse to capture how the impact varies with the quality of rice and thus different income groups of buyers. We use daily retail and weekly wholesale price data of each district from Department of Agricultural Marketing (DAM) for the period 2010-2016 and pair them up with the incidence of strike data compiled by Ahsan and Iqbal (2016). The richness of this high frequency data allows us to control for all types of time and district invariant confounders using fixed effects. The results show that on the day of strike, rice price increases and this increase is higher for coarse rice. It indicates that the political strikes is costly for the ordinary citizen and the cost is disproportionately large on the poor more, who are the consumers of lower quality rice.