International Trade and Domestic Price Stability in the Presence of Large Scale Climate Shocks

• Agricultural Economics Workshop

Date and Location

Thursday, January 27, 2022, 4:10 PM - 5:30 PM
Online Meeting, Zoom

Abstract

Worldwide climates are correlated, typically over thousands of kilometers, through the so-called climate teleconnections such as El Niño/Southern Oscillation (ENSO). I assess the relevance of spatially correlated ENSO-driven supply shocks on domestic producer and consumer maize prices in Southern and Eastern Africa. I find that both farm-gate and consumer price indices derived from a structural gravity model of trade increase significantly in response to ENSO shocks. A hypothetical full trade facilitation scenario in Southern and Eastern Africa reduces the volatility of maize consumer prices, but do not eliminate the sensitivity of maize consumer prices to ENSO shocks. This highlights that international trade, even under extreme unilateral trade liberalization, may not be enough to completely eliminate price spikes when supply shocks are correlated among close trading partners.

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