Food Prices and the Multiplier Effect of Export Policy

46 Pages Posted: 14 Apr 2012

See all articles by Michele Ruta

Michele Ruta

Economic Research Division, WTO; Columbia Business School - Economics Department; International Monetary Fund (IMF)

Nadia Rocha

World Trade Organization

Paolo E. Giordani

LUISS "Guido Carli" University

Multiple version iconThere are 2 versions of this paper

Date Written: April 2012

Abstract

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.

Keywords: loss aversion, export policy, multiplier effect, food crisis, WTO

JEL Classification: F13, F59, Q02, Q17

Suggested Citation

Ruta, Michele and Rocha, Nadia and Giordani, Paolo E., Food Prices and the Multiplier Effect of Export Policy (April 2012). Available at SSRN: https://ssrn.com/abstract=2039319 or http://dx.doi.org/10.2139/ssrn.2039319

Michele Ruta (Contact Author)

Economic Research Division, WTO ( email )

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Switzerland

HOME PAGE: http://www.iue.it/Personal/Fellows/MicheleRuta/Welcome.htm

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nadia Rocha

World Trade Organization ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

Paolo E. Giordani

LUISS "Guido Carli" University ( email )

Viale Romania 32
Roma, Roma 00197
Italy

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