Food Prices, Wages, and Welfare in Rural India

50 Pages Posted: 20 Apr 2016

See all articles by Hanan G. Jacoby

Hanan G. Jacoby

World Bank - Agriculture and Rural Development Department; World Bank - Development Research Group (DECRG)

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Date Written: April 1, 2013

Abstract

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.

Keywords: Markets and Market Access, Economic Theory & Research, Labor Policies, Agribusiness, Emerging Markets

Suggested Citation

Jacoby, Hanan G., Food Prices, Wages, and Welfare in Rural India (April 1, 2013). World Bank Policy Research Working Paper No. 6412, Available at SSRN: https://ssrn.com/abstract=2253153

Hanan G. Jacoby (Contact Author)

World Bank - Agriculture and Rural Development Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/hjacoby

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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