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European Review of Agricultural Economics 2004 31(3):369-387; doi:10.1093/erae/31.3.369
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European Review of Agricultural Economics vol. 31 no. 3 © Oxford University Press and Foundation for the European Review of Agricultural Economics 2004; all rights reserved

Trade exposure and income volatility in cash-crop exporting developing countries

François Bourguignon

World Bank, Washington, DC, USA

Sylvie Lambert

Institut National de la Recherche Agronomique (Paris-Jourdan), Paris, France

Akiko Suwa-Eisenmann

Institut National de la Recherche Agronomique (Paris-Jourdan), Paris, France

Received June 2004;

Summary

World commodity price volatility generates an aggregate macroeconomic risk for the many developing countries that are dependent on the export of a few agricultural commodities. Usual income indicators should therefore take into account the corresponding risk premium, especially for households close to subsistence level. A risk-augmented income distribution would yield a very different ranking of the policies often used to alleviate the domestic impact of world price volatility. This paper gives illustrative examples using simulations generated by a general equilibrium model with random prices for cash crops. Results show that policies that are similar in terms of expected average income can have quite different effects in terms of income variances.

Keywords: risk, commodity price volatility, trade and income distribution, computable general equilibrium


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