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Domestic Trade Frictions and Agriculture

Author

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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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    1. Tasso Adamopoulos & Diego Restuccia, 2014. "The Size Distribution of Farms and International Productivity Differences," American Economic Review, American Economic Association, vol. 104(6), pages 1667-1697, June.
    2. David Atkin, 2013. "Trade, Tastes, and Nutrition in India," American Economic Review, American Economic Association, vol. 103(5), pages 1629-1663, August.
    3. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    4. Arnaud Costinot & Jonathan Vogel, 2015. "Beyond Ricardo: Assignment Models in International Trade," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 31-62, August.
    5. James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-2186, December.
    6. Treb Allen, 2014. "Information Frictions in Trade," Econometrica, Econometric Society, vol. 82, pages 2041-2083, November.
    7. Fernando Parro, 2013. "Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 72-117, April.
    8. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550.
    9. Javier Escobal & Máximo Torero, 2005. "Measuring the Impact of Asset Complementarities: The Case of Rural Peru," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 42(125), pages 137-164.
    10. Trevor Tombe, 2012. "The Missing Food Problem," Working Papers tt0060, Wilfrid Laurier University, Department of Economics, revised 2012.
    11. Arnaud Costinot & Dave Donaldson & Cory Smith, 2016. "Evolving Comparative Advantage and the Impact of Climate Change in Agricultural Markets: Evidence from 1.7 Million Fields around the World," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 205-248.
    12. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    13. Jonathan Eaton & Samuel S. Kortum & Sebastian Sotelo, 2012. "International Trade: Linking Micro and Macro," NBER Working Papers 17864, National Bureau of Economic Research, Inc.
    14. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 511-540, July.
    15. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 1-44.
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    Cited by:

    1. 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.
    2. 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.
    3. Nathaniel Baum-Snow & J. Vernon Henderson & Matthew A. Turner & Qinghua Zhang & Loren Brandt, 2018. "Does Investment in National Highways Help or Hurt Hinterland City Growth?," NBER Working Papers 24596, National Bureau of Economic Research, Inc.
    4. repec:oup:erevae:v:44:y:2017:i:4:p:592-633. is not listed on IDEAS
    5. repec:nbr:nberch:13946 is not listed on IDEAS

    More about this item

    Keywords

    assignment models; trade costs; equilibrium; agriculture; productivity;

    JEL classification:

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

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