The Potential Effects on Welfare and Poverty of Increasing International Prices of Agricultural Commodities. A Micro-Simulation Exercise for Urban Mexico

Slippery Rock, Pennsylvania

Congreso; Pennsylvania Economic Association Annual Conference; 2016

Pennsylvania Economic Association

With a large share of households with low and medium-low income, an increase in agricultural commodity prices has the potential to hurt a sizable part of the population through the rise in the cost of the consumption basket. Ex-ante this is the case. A less obvious channel, through changes in labor income would be more beneficial to low-income households. Overall, and assuming a 50% increase in international commodity prices, all households experience losses, around 5.5% of their initial expenditure. In terms of poverty, the increase would be 14%, with that of extreme-poverty even greater, 23%. Also, the results show that households in a situation of indigence and poverty would move in average further away from the thresholds lines. Most of the effects take place in the same quarter the shock occurs, reaching the full impact two quarters later.