An ex-ante analysis of the welfare effects of changes in international prices of agricultural commodities: the case of Uruguay

SERGIO BARONE; RICARDO DESCALZI; PEDRO E. MONCARZ

Paris

Congreso; 17th Annual Conference of the European Trade Study Group; 2015

European Trade Study Group y Université Paris 1 Panthéon-Sorbonne

We analyze the impact on welfare of an increase in commodity prices in Uruguay. Given that this country has a large share of households with low and medium-low income, a positive shock on commodity prices has the potential to hurt a sizable part of the population through the rise in the cost of the consumption basket. However, the pass through on domestic prices would be alleviated by positive changes in labor income that middle-income households experience as the wages also respond to hike of international commodity prices. We find that in Uruguay households at the upper end of the distribution would benefit with the increase of the international prices of agricultural commodities, with low-income households losing as much as 7.5%. In terms of poverty, the increase would be 34%, while increases in indigence would be lower: 19%. Also, the results show that households in a situation of indigence and/or poverty, would move in average further away from the threshold lines, meaning that within each category, poor and indigent households become more homogeneous among the.