Do subsidies matter in food price stabilization? Evidences from Ethiopia in a computable general equilibrium framework

Woldie, Getachew Abebe and Siddig, Khalid (2009): Do subsidies matter in food price stabilization? Evidences from Ethiopia in a computable general equilibrium framework.

Abstract

In the poorest countries like Ethiopia the spillover effects of a soaring food price is unbearable. To mitigate the recent rise in food prices and the burden on urban poor consumers, policy makers have considered various measures. A recent shift from subsidizing oil to grain to ease the spiraling cost of food is one attempt the Ethiopian government has made so far. To this end, the government has removed an $800m annual subsidy on petroleum products and used the money to combat rising grain prices. Using the standard GTAP model and the recent GTAP Africa database, this paper simulates the overall implication of 5 and 10 percent increase of subsidy on wheat. Regarding the impact on prices, the simulation result tells us that prices have indeed fall. At macro level, the result reveals subsidy on wheat leads to a decline in the overall trade balance. In terms of welfare, the intervention is likely to have a positive impact.

• Item Type: MPRA Paper
• Language: English
• Keywords: Food policy; price policy; WTO; Ethiopia; GTAP
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E64 - Incomes Policy ; Price Policy; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies; F - International Economics > F1 - Trade > F17 - Trade Forecasting and Simulation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy ; Food Policy

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