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Food Prices and the Multiplier Effect of Trade Policy
Report

Food Prices and the Multiplier Effect of Trade Policy

Paolo Giordani, Nadia Rocha and Michele Ruta
IMF, 2014
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Eye Opening

Recommendation

The merit of government intervention in free markets is a hotly contended issue. When it comes to food prices, however, governments’ active trade policies seem to exacerbate existing problems. Economists Paolo Giordani, Nadia Rocha and Michele Ruta parse data on food price volatility between 2008 and 2011 that appear to support a positive correlation between policies designed to correct imbalances and higher food prices. Rich in formulaic expression, this scholarly analysis considers how, rather than preventing “food crises,” government can actually contribute to them. getAbstract recommends this report’s erudite insights to economists and policy makers.

Take-Aways

  • Economists have long suspected that government trade policies play a role in “food crises,” which are “sudden and rapid spikes in food prices.”
  • To protect consumers and producers, governments often implement various trade measures – such as export restrictions, import tariffs and quota reductions – to address food price shocks.
  • A “multiplier effect” occurs when nations counter other countries’ actions with measures that nullify the initial response and force a spiraling series of trade actions. These multiplier effects risk subverting global food markets.

About the Authors

Paolo Giordani is an economics professor at LUISS Guido Carli University in Rome. Nadia Rocha is a senior economic adviser to Colombia’s Ministry of Trade. Michele Ruta is a lead economist at the World Bank.

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