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GTAP Resource #3055

"International Commodity Prices, Trade and Poverty in Uruguay"
by Estrades, Carmen and Maria Ines Terra

Food prices have risen sharply since 2006. This may have a positive impact on developing countries specialized on primary exports. But it may also increase poverty through an increase in the price of basic food products. At the same time, oil prices have also soared. Many studies analyze the impact of the rise in commodity prices on welfare in developing countries, but they are not conclusive. Uruguay is a net exporter of primary products and a net importer of oil. This paper analyzes the impact of an increase of commodity prices on the Uruguayan economy, focusing on the impact on welfare and poverty. We applied a CGE model and microsimulations. It is a conventional static CGE model for Uruguay. We assume that the rise in prices is transitory. Then, we work with a short run model assuming sector-specific capital and production functions with fixed coefficients for intermediate inputs and value added in some sectors. However, there is some substitution among capital and labor and among different types of labor. Results show that a rise in food prices has a positive impact on Uruguayan economy that is partially offset by the increase in oil prices, its main import product. When food prices increase, production and exports increase sharply. In spite of the increase in wages paid to unskilled workers, poorer households reduce consumption, because their consumption basket becomes more expensive. Poverty falls but extreme poverty increases. In contrast, an increase in oil prices has a negative effect on GDP, consumption, investment and payments to factors. Income falls for all types of households and poverty and extreme poverty increase. We simulated some policies aimed to compensate for the negative impact of these shocks on the poorest households. Eliminating VAT and tariffs on food has a slight impact on macroeconomic variables and welfare. In contrast, a policy of transfers to the poorest households has a significant impact on welfare, and it is also less costly.

Resource Details (Export Citation) GTAP Keywords
Category: 2009 Conference Paper
Status: Published
By/In: Presented at the 12th Annual Conference on Global Economic Analysis, Santiago, Chile
Date: 2009
Created: Estrades, C. (4/15/2009)
Updated: Batta, G. (4/15/2009)
Visits: 2,109
- Domestic policy analysis
- Economic analysis of poverty
- Labor market issues
- South America

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