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Food prices, wages, and welfare in rural India

  • Jacoby, Hanan G.

This paper considers the welfare and distributional consequences of higher relative food prices in rural India through the lens of a specific-factors, general equilibrium, trade model applied at the district level. The evidence shows that nominal wages for manual labor both within and outside agriculture respond elastically to increases in producer prices; that is, wages rose faster in rural districts growing more of those crops with large price run-ups over 2004-09. Accounting for such wage gains, the analysis finds that rural households across the income spectrum benefit from higher agricultural commodity prices. Indeed, rural wage adjustment appears to play a much greater role in protecting the welfare of the poor than the Public Distribution System, India's giant food-rationing scheme. Moreover, policies, like agricultural export bans, which insulate producers (as well as consumers) from international price increases, are particularly harmful to the poor of rural India. Conventional welfare analyses that assume fixed wages and focus on households'net sales position lead to radically different conclusions.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6412.

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Date of creation: 01 Apr 2013
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Handle: RePEc:wbk:wbrwps:6412
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  1. Sah, Raaj Kumar & Stiglitz, Joseph E, 1987. "Price Scissors and the Structure of the Economy," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 109-34, February.
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  9. Ivanic, Maros & Martin, Will, 2008. "Implications of higher global food prices for poverty in low-income countries," Policy Research Working Paper Series 4594, The World Bank.
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  11. repec:hal:wpaper:halshs-00680451 is not listed on IDEAS
  12. Porto, Guido G., 2006. "Using survey data to assess the distributional effects of trade policy," Journal of International Economics, Elsevier, vol. 70(1), pages 140-160, September.
  13. Wodon, Quentin & Tsimpo, Clarence & Backiny-Yetna, Prospere & Joseph, George & Adoho, Franck & Coulombe, Harold, 2008. "Potential impact of higher food prices on poverty : summary estimates for a dozen west and central African countries," Policy Research Working Paper Series 4745, The World Bank.
  14. The World Bank,, 2010. "India's Employment Challenge: Creating Jobs, Helping Workers," OUP Catalogue, Oxford University Press, number 9780198063513, March.
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  17. Deaton, Angus, 1989. "Rice Prices and Income Distribution in Thailand: A Non-parametric Analysis," Economic Journal, Royal Economic Society, vol. 99(395), pages 1-37, Supplemen.
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