Assessing the poverty impacts when commodity prices are volatile

Monika Verma, Purdue University


There is abundant literature analyzing the effects of policy changes on poverty and the poor, the majority of whom are concentrated in rural areas and employed in agricultural activities. However this literature remains mute on whether or not the policy impacts on poverty are likely to be observable (statistically significant) in a world of volatile prices and incomes. This dissertation seeks to close this gap by introducing price volatility into a computable general equilibrium model and then testing the statistical significance of policy interventions in this environment. Specifically, it tests the hypothesis that the poverty headcount changes stemming from trade liberalization are not statistically different from random changes in headcount numbers due to normal year-to-year price fluctuations. The findings suggest that poverty headcount impacts of completely abolishing the tariffs on staple grains trade are likely to be statistically insignificant for most countries in the sample; which further suggests that impacts of a more realistic liberalization would be even less visible to the observer of statistical data on poverty headcounts. In light of the importance of food consumption effects for the poor, but also the fact that household survey based demand systems can be problematic (e.g., no price data, or limited price variation, measurement problems), the dissertation begins by evaluating the capability of a demand system estimated using international cross-section per capita data to represent the consumption behavior of low income households. The results indicate that AIDADS performs quite well in capturing the impact of per capita income variation on demand for the focus country—Bangladesh. The dissertation concludes by combining this demand system with detailed nutritional intake data for Bangladesh to compare the impact of volatile commodity prices on nutrient intakes around the nutritional poverty line in that country. These results are compared to the impacts when Special Safeguards are implemented as per the suggestion of many developing countries in the context of the Doha Development Agenda of the WTO. The analysis finds that a quantity-triggered safeguard mechanism does not induce significant changes in the mean and standard deviations of nutrient intakes for the country’s poor and therefore reaching an agreement on special safeguards measures does not seem to be of critical importance from the perspective of low income households in Bangladesh.




Hertel, Purdue University.

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