Restricting Trade and Reducing Variety: Evidence from Ethiopia

25 Pages Posted: 17 Sep 2018

See all articles by Pramila Krishnan

Pramila Krishnan

University of Oxford - Department of Economics

Peng Zhang

Simon Fraser University (SFU)

Date Written: September 2018

Abstract

The study of consumption in poor households usually focuses on the costs of the consumption basket rather than its composition. In contrast, we investigate the variety in consumption using data from rural Ethiopia. We examine the loss in variety in remote locations, relying on a purpose-designed longitudinal survey over two years, where villages differ only in distance to the market and are homogenous otherwise. In addition, we exploit a change in policy which resulted in a crackdown on informal or unlicensed traders in the second year but which affected only the more remote set of villages and resulted in a fall in availability in these villages. We examine the welfare impact of the crackdown on traders by calculating the compensating and equivalent variation and find a fall in welfare between 11% and 13% of incomes for households affected by the crackdown, mostly driven by the resultant fall in varieties available. The welfare costs of remoteness are driven by not just the fall in consumption but also the fall in variety in consumption.

Keywords: Domestic trade, transport costs, Variety

Suggested Citation

Krishnan, Pramila and Zhang, Peng, Restricting Trade and Reducing Variety: Evidence from Ethiopia (September 2018). CEPR Discussion Paper No. DP13169, Available at SSRN: https://ssrn.com/abstract=3250785

Pramila Krishnan (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Peng Zhang

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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