Sharing Gains from Trade: Global Markets and Farmers Welfare in Developing Countries

The majority of the global poor live in rural areas and earn their livelihoods in agriculture. Linking farmers in developing countries (LDCs) to global markets, therefore, could potentially spur growth and reduce poverty. Market imperfections in agricultural chains in producing countries, however, limit these gains. Which policy tools, if any, help farmers in LDCs realize and share the gains from trade? I propose three broad projects that develop the tools to answer this question. The first project designs and implements the first randomized control trial (RCT) to test for the causes and consequences of market failures interacting along multiple layers of agricultural value chains. This is a necessary step to design targeted policy responses.The second project develops and estimates the first structural model of an agricultural value chain to evaluate different regulatory interventions. Historically, as well as today, governments have intervened in agricultural chains through a diverse array of policies and regulations. RCTs are not sufficient to evaluate these policies. The project develops flexible tools to perform counterfactual analysis and evaluate the merits of alternative policies and regulations in a variety of contexts. The third project studies voluntary sustainability standards (VSSs) (e.g., Fair Trade, Rainforest Alliance). VSSs are increasingly popular responses to market failures in agricultural chains in LDCs. Unlike regulatory interventions, VSSs directly affect only market participants that take them up. The project combines quasi-experimental and structural techniques to evaluate the direct impact, the indirect spillover effects, and the broader distributional consequences of VSSs. The three projects form a coherent research agenda that develops a comprehensive set of tools to evaluate existing agricultural policies and design better ones so that small producers in developing countries can realize and share the gains from globalization.