Trade Insulation as Social Protection

In a world with volatile food prices, countries have an incentive to shelter their populations from induced real income shocks. When some agents are net food producers while others are net consumers, there is scope for insurance between the two gro...

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Bibliographic Details
Main Authors:	Do, Quy-Toan, Levchenko, Andrei A., Ravallion, Martin
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ADVERSE SELECTION AGGREGATE DEMAND AGGREGATE SUPPLY AGRICULTURAL ECONOMICS AGRICULTURE ASSET MARKET ASSET MARKETS BENCHMARK BUDGET CONSTRAINTS CLASSICAL ECONOMISTS COMMERCIAL POLICY COMMODITIES COMMODITY COMMODITY PRICE CONSUMERS DEMAND FOR FOOD DEMAND FUNCTIONS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT POLICY DOMESTIC MARKET DOMESTIC MARKETS DOMESTIC PRICES ECONOMIC HISTORY EQUILIBRIUM EQUILIBRIUM PRICE EQUILIBRIUM PRICES EQUILIBRIUM VALUES EXPENDITURE EXPORTS EXTERNAL TRADE EXTERNALITY EXTREME POVERTY FAIR FAMINE FAMINES FEED FINANCIAL CRISIS FINANCIAL INTEGRATION FOOD AVAILABILITY FOOD CONSUMPTION FOOD CRISIS FOOD EXPORT FOOD POLICY FOOD POLICY RESEARCH FOOD PRICE FOOD PRICE STABILIZATION FOOD PRICES FOOD PRODUCERS FOOD PRODUCTION FOOD SECURITY FOOD SHORTAGE FOREIGN MARKET FREE TRADE GLOBAL FOOD SECURITY GLOBALIZATION GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GRAIN MARKETS GRAIN RESERVES GRAINS HAZARD HUNGER IFPRI INCOME INCOMES INSURANCE INSURANCE MARKET INSURANCE MARKETS INSURANCE POLICIES INSURANCE POLICY INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE INTERNATIONAL MARKETS INTERNATIONAL TRADE LIBERALIZATION MORAL HAZARD OPTIMIZATION OUTPUT PRICE DISTORTION PRICE DISTORTIONS PRICE INCREASES PRICE LEVELS PRICE POLICY PRICE STABILIZATION PRICE SUBSIDY PRICE TAKERS PRICE VOLATILITY REAL INCOME REAL INCOME DECLINES RICE RISK SHARING SECURITIES SOCIAL PROTECTION SPOT MARKET STABILIZATION POLICIES STARVATION SUBSTITUTE SUBSTITUTION SUPPLY CURVE SUPPLY SHOCK SUPPLY SHOCKS TRADE BALANCE TRADE POLICIES TRADE POLICY TRANSACTION COSTS VULNERABLE GROUPS WAGES WEALTH WORLD ECONOMY WORLD FOOD SUPPLY
Online Access:	http://documents.worldbank.org/curated/en/2013/05/17721206/trade-insulation-social-protection http://hdl.handle.net/10986/15588

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Summary:	In a world with volatile food prices, countries have an incentive to shelter their populations from induced real income shocks. When some agents are net food producers while others are net consumers, there is scope for insurance between the two groups. A domestic social protection scheme would therefore transfer resources away from the former group to the latter in times of high food prices, and do the reverse otherwise. This paper shows that in the presence of consumer preference heterogeneity, implementing the optimal social protection policy can potentially induce higher food price volatility. Such policy indeed generates a counter-cyclical demand shock that amplifies the effects of the underlying food shortage. The results call for a reassessment of food stabilization policies. In particular, the authors urge caution against the systematic condemnation of trade insulation practices.

Trade Insulation as Social Protection

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