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Food Prices and the Multiplier Effect of Export Policy

  • Paolo E. Giordani


    (Luiss "Guido Carli")

  • Nadia Rocha


    (World Trade Organization)

  • Michele Ruta


    (World Trade Organization)

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.

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Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers LuissLab with number 1297.

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Date of creation: 2012
Date of revision:
Handle: RePEc:lui:lleewp:1297
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  1. Headey, Derek, 2011. "Rethinking the global food crisis: The role of trade shocks," Food Policy, Elsevier, vol. 36(2), pages 136-146, April.
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  4. Nuno Limão & Kamal Saggi, 2013. "Size Inequality, Coordination Externalities and International Trade Agreements," Vanderbilt University Department of Economics Working Papers 13-00013, Vanderbilt University Department of Economics.
  5. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," World Bank Economic Review, World Bank Group, vol. 29(1), pages 72-101.
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  9. Tovar, Patricia, 2009. "The effects of loss aversion on trade policy: Theory and evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 154-167, June.
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  11. Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc.
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  13. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
  14. Martin, Will & Anderson, Kym, 2011. "Export restrictions and price insulation during commodity price booms," Policy Research Working Paper Series 5645, The World Bank.
  15. Bouet, Antoine & Laborde Debucquet, David, 2010. "Economics of export taxation in a context of food crisis," IFPRI discussion papers 994, International Food Policy Research Institute (IFPRI).
  16. Piermartini, Roberta, 2004. "The role of export taxes in the field of primary commodities," WTO Discussion Papers 4, World Trade Organization (WTO), Economic Research and Statistics Division.
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