When Banana Import Restrictions Lead to Exports: A Tale of Cyclones and Quarantine Policies

30 Pages Posted: 1 Mar 2014

See all articles by Chia Chiun Ko

Chia Chiun Ko

University of Queensland

Paul Frijters

Queensland University of Technology - School of Economics and Finance

Abstract

This paper examines the welfare loss of import restrictions on bananas in Australia and whether the import restrictions have turned into a particular form of export promotion. We set up a model in which there is free domestic entry, with banana producers accepting losses in normal years, off-set by large profits in years when cyclones destroy a large proportion of the banana plants because of sufficiently low elasticity of demand. Using the cyclones of 2006 and 2011 as exogenous events, we identify the elasticity of demand for bananas in Australia to be around -0.5. We indeed find limited evidence for an ‘over-shooting’ in terms of the supply response after these cyclones, leading to positive exports years after cyclones have hit and re-planted banana plants have become productive. Combining the elasticity estimates with information on turnover, we get an estimated welfare loss of 600 million dollars per year due to banana import restrictions.

Keywords: competition, import restrictions, exogenous shocks, instrumental variables, surplus

JEL Classification: Q17, L2, C26, D61

Suggested Citation

Ko, Chia Chiun and Frijters, Paul, When Banana Import Restrictions Lead to Exports: A Tale of Cyclones and Quarantine Policies. IZA Discussion Paper No. 7988. Available at SSRN: https://ssrn.com/abstract=2403125

Chia Chiun Ko (Contact Author)

University of Queensland

St Lucia
Brisbane, 4072
Australia

Paul Frijters

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia
(07) 3864 9364 (Phone)
(07) 3864 1500 (Fax)

HOME PAGE: http://www.bus.qut.edu.au/paulfrijters/index.jsp

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