Trade Barrier Volatility and Agricultural Price Stabilization

Abstract

National barriers to trade are often varied to insulate domestic markets from international price variability. This paper explores the extent of that behavior by governments using estimates of agricultural price distortions in 75 countries. Newly estimated price transmission elasticities are quite low, albeit slightly higher since than before 1985. In the case of extreme upward price spikes, trade policy responses by food importers are as substantial as those of exporting countries. The domestic price-stabilizing effect of intervention by each group is thereby weakened by the other group’s response, suggesting more-effective domestic policy options need to be considered instead of varying trade barriers.

Keywords: Agricultural trade policies, Commodity price stabilization, Distorted incentives, Domestic market insulation, Price transmission

JEL Classification: F14, Q17, Q18