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Domestic Trade Frictions and Agriculture

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  • Sebastian Sotelo

    (University of Michigan)

Abstract

Trade costs are a major barrier to efficient farming in developing countries. I study land use patterns and input demand in Peru, a country where goods are traded at a high cost, both domestically and with the rest of the world. I then quantify the equilibrium effect of paving existing roads on productivity and real incomes. To do so, I develop a model of agricultural specialization and trade, and quantify it using a new dataset on Peruvian agriculture, which includes disaggregated information on crop prices, yields and land allocations. While typically raising productivity, paving roads on a large scale creates both winners and losers, depending on whether prices are set in domestic markets, or whether workers are net food buyers. In the simulations, an average farmer gains 14% in productivity and 5% in welfare.

Suggested Citation

  • Sebastian Sotelo, 2015. "Domestic Trade Frictions and Agriculture," Working Papers 641, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:641
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    File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r641.pdf
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    References listed on IDEAS

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    Cited by:

    1. Van Leemput, Eva, 2021. "A passage to India: Quantifying internal and external barriers to trade," Journal of International Economics, Elsevier, vol. 131(C).
    2. Heitor Pellegrina & Sebastian Sotelo, 2019. "Migration, Specialization and Trade: Evidence from the Brazilian March to the West," 2019 Meeting Papers 863, Society for Economic Dynamics.
    3. Kala Krishna & Yelena Sheveleva, 2017. "Wheat or Strawberries? Intermediated Trade with Limited Contracting," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 28-62, August.
    4. Le, Kien, 2020. "Land use restrictions, misallocation in agriculture, and aggregate productivity in Vietnam," Journal of Development Economics, Elsevier, vol. 145(C).
    5. Baum-Snow, Nathaniel & Henderson, J. Vernon & Turner, Matthew A. & Zhang, Qinghua & Brandt, Loren, 2020. "Does investment in national highways help or hurt hinterland city growth?," Journal of Urban Economics, Elsevier, vol. 115(C).
    6. Luca Salvatici & Silvia Nenci, 2017. "New features, forgotten costs and counterfactual gains of the international trading system," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 44(4), pages 592-633.
    7. Thibault Fally & James Sayre, 2018. "Commodity Trade Matters," NBER Working Papers 24965, National Bureau of Economic Research, Inc.
    8. Felipe Benguria & Felipe Saffie & Sergio Urzúa, 2018. "The Transmission of Commodity Price Super-Cycles," NBER Working Papers 24560, National Bureau of Economic Research, Inc.
    9. repec:nbr:nberch:13946 is not listed on IDEAS
    10. Gouel, Christophe & Laborde, David, 2021. "The crucial role of domestic and international market-mediated adaptation to climate change," Journal of Environmental Economics and Management, Elsevier, vol. 106(C).
    11. Bruno Morando, 2021. "Subsistence farming and factor misallocation:Evidence from Ugandan agriculture," Economics Department Working Paper Series n308-21.pdf, Department of Economics, National University of Ireland - Maynooth.
    12. Pablo D. Fajgelbaum & Edouard Schaal, 2020. "Optimal Transport Networks in Spatial Equilibrium," Econometrica, Econometric Society, vol. 88(4), pages 1411-1452, July.
    13. Zhou Zhou & Jianqiang Duan & Wenxing Li & Shaoqing Geng, 2021. "Can Rural Road Construction Promote the Sustainable Development of Regional Agriculture in China?," Sustainability, MDPI, Open Access Journal, vol. 13(19), pages 1-32, September.
    14. Gouel, Christophe & LaBorde, David, 2017. "The Crucial Role of International Trade in Adaptation to Climate Change," 2017: Globalization Adrift, December 3-5, 2017, Washington, D.C. 266841, International Agricultural Trade Research Consortium.
    15. Farid Farrokhi & Heitor S. Pellegrina, 2020. "Global Trade and Margins of Productivity in Agriculture," NBER Working Papers 27350, National Bureau of Economic Research, Inc.
    16. Jason Query, 2020. "Differing trade elasticities for intra‐ and international distances: A gravity approach," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 913-929, August.
    17. Porteous, Obie C., 2015. "High Trade Costs and Their Consequences: An Estimated Model of African Agricultural Storage and Trade," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205776, Agricultural and Applied Economics Association.
    18. Nathaniel Baum-Snow & Loren Brandt & J. Vernon Henderson & Matthew A. Turner & Qinghua Zhang, 2016. "Highways, Market Access and Urban Growth in China," SERC Discussion Papers 0200, Spatial Economics Research Centre, LSE.
    19. María Adelaida Ortega, 2018. "Conectando mercados: vías rurales y producción agrícola en el contexto de una economía dual," Documentos CEDE 016818, Universidad de los Andes - CEDE.

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    More about this item

    Keywords

    assignment models; trade costs; equilibrium; agriculture; productivity;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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