1887

WTO Working Papers

WTO working papers usually represent research in progress. Such research may be conducted in the preparation of WTO Secretariat reports, studies or other material for WTO members. The papers are circulated for comment because the WTO considers critical review of professional research to be extremely important.

English

Food Prices and the Multiplier Effect of Export Policy

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. Specifically, unilateral actions by exporting countries give rise to a "multiplier effect": 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, finding evidence of a multiplier effect. 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 effect 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 findings contribute to inform the broader debate on the proper regulation of export policy within the multilateral trading system.

English

Keywords: Export policy, Multiplier effect, Food crisis, Loss aversion, WTO
JEL: Q02: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / General / Commodity Markets; F59: International Economics / International Relations, National Security, and International Political Economy / International Relations and International Political Economy: Other; F13: International Economics / Trade / Trade Policy; International Trade Organizations; Q17: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Agriculture / Agriculture in International Trade
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error