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Rain, agriculture, and tariffs
 
Author:Bastos, Paulo; Straume, Odd Rune; Urrego, Jaime A.; Collection Title:Policy Research working paper ; no. WPS 6394
Country:World; Date Stored:2013/03/27
Document Date:2013/03/01Document Type:Policy Research Working Paper
Language:EnglishMajor Sector:Industry and trade
Rel. Proj ID:1W-Trade Costs And Development -- -- P133550;Region:The World Region
Report Number:WPS6394Sub Sectors:Other domestic and international trade
SubTopics:Economic Theory & Research; Markets and Market Access; Agribusiness; Free Trade; Science of Climate ChangeTF No/Name:TF013652-Trade costs and development
Volume No:1 of 1  

Summary: This paper examines whether and how rainfall shocks affect tariff setting in the agricultural sector. In a model of strategic trade policy, the authors show that the impact of a negative rainfall shock on optimal import tariffs is generally ambiguous, depending on the weight placed by the domestic policy maker on tariff revenue, profits and the consumer surplus. The more weight placed on domestic profits, the more likely it is that the policy maker will respond to a rainfall shortage by reducing import tariffs. These findings are robust to alternative assumptions about market structure and the timing of the game. Using detailed panel data on applied tariffs and rainfall for 70 nations, the authors find robust evidence that rainfall shortages generally induce policy makers to set lower tariffs on agricultural imports.

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