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Food Prices and the Multiplier Effect of Export Policy

Author

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  • Paolo E. Giordani

    () (Luiss "Guido Carli")

  • Nadia Rocha

    () (World Trade Organization)

  • Michele Ruta

    () (World Trade Organization)

Abstract

This paper studies the relationship between export policy and food prices. We show that, when individuals are loss averse, food exporters may use trade policy to shield the domestic economy from large price shocks. This creates a complementarity between the price of food in international markets and export policy. Speci?cally, unilateral actions by exporting countries give rise to a "multiplier e¤ect": when a shock in the international food market drives up (down) its price, governments respond by imposing export restrictions (subsidies), thus exacerbating the initial shock and soliciting further export activism. We test this theory with a new dataset that comprises monthly information on trade measures across 125 countries and 29 food products for the period 2008-10, ?nding evidence of a multiplier e¤ect. Global restrictions in a product (i.e. the share of international trade covered by export restrictions) are positively correlated with the probability of imposing a new export restriction on that product, especially for staple foods. Large exporters are found to be more reactive to restrictive measures, suggesting that the multiplier e¤ect is mostly driven by this group. Finally, we estimate that a 1 per cent surge in global restrictions increased international food prices by 1.1 per cent on average during 2008-10. These ?ndings contribute to inform the broader debate on the proper regulation of export policy within the multilateral trading system.

Suggested Citation

  • Paolo E. Giordani & Nadia Rocha & Michele Ruta, 2012. "Food Prices and the Multiplier Effect of Export Policy," Working Papers LuissLab 1297, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    • Handle: RePEc:lui:lleewp:1297
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How the CAP contributes to world market food price volatility - by Alan Matthews
      by Alan Matthews in CAP Reform.eu on 2012-04-14 13:05:50

    Citations

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    Cited by:

    1. Shikha Jha & Kensuke Kubo & Bharat Ramaswami, 2016. "International Trade and Risk Sharing in the Global Rice Market: The Impact of Foreign and Domestic Supply Shocks," Asian Development Review, MIT Press, vol. 33(1), pages 162-182, March.
    2. Rude, James & An, Henry, 2015. "Explaining grain and oilseed price volatility: The role of export restrictions," Food Policy, Elsevier, vol. 57(C), pages 83-92.
    3. Olga Solleder, 2013. "Trade Effects of Export Taxes," IHEID Working Papers 08-2013, Economics Section, The Graduate Institute of International Studies.
    4. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters,in: The Economics of Food Price Volatility, pages 261-306 National Bureau of Economic Research, Inc.
    5. Michele Ruta & Anthony J. Venables, 2012. "International Trade in Natural Resources: Practice and Policy," Annual Review of Resource Economics, Annual Reviews, vol. 4(1), pages 331-352, August.
    6. Christophe Gouel, 2016. "Trade Policy Coordination and Food Price Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(4), pages 1018-1037.
    7. Jean-Christophe Bureau & Sébastien Jean, 2013. "International Agricultural Trade and Negotiations : Coping with a New Landscape
      [Commerce et négociations agricoles commerciales: s'ajuster au nouvel environnement]      ," Working Papers hal-01592099, HAL.
    8. Christiane Baumeister & Lutz Kilian, 2014. "Do oil price increases cause higher food prices?," Economic Policy, CEPR;CES;MSH, vol. 29(80), pages 691-747, October.
    9. Simon J. Evenett & Johannes Fritz, 2011. "Die negativen Auswirkungen des krisenbezogenen Handelsprotektionismus auf die Schweizer Aussenwirtschaft:," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 66(04), pages 359-383, December.
    10. Shikha Jha & P.V. Srinivasan, 2014. "Food price inflation, growth and poverty," Chapters,in: Handbook on Food, chapter 4, pages 72-99 Edward Elgar Publishing.
    11. de Gorter, Harry & Drabik, Dusan, 2015. "Developing Countries' Policy Responses to Food Price Boom and Biofuel Policies," 2015 Conference, August 9-14, 2015, Milan, Italy 211564, International Association of Agricultural Economists.

    More about this item

    Keywords

    Loss aversion; Export policy; Multiplier e¤ect; Food crisis; WTO;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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