An empirical assessment of Fairtrade: A perspective for low- and middle-income countries?

The present papers establishes a framework that allows to investigate the determinants of the extensive and intensive margin of participation in the Fairtrade certification scheme. We use this knowlegde to identify a causal effect of Fairtrade certification on growth in the agricultural sector in low- and middle-income countries in order to assess whether participation in Fairtrade indeed reduces poverty among smallholders and marginalized farmers. First of all we compile a unique dataset on the number of Fairtrade certified producer cooperatives across countries and time. With this dataset at hand, the determinants of the extensive and intensive margin of participation in Fairtrade are modelled in a two-stage problem using a zero inflated negative binomial model. The growth regressions are estimated with a set of different estimation methods with Blundell-Bond system GMM estimation as our preferred method. We find that large countries with a labor intensive agricultural sector are most likely to have Fairtrade certified producer cooperatives. Finally, the growth regressions show that there is indeed a small positive effect on agricultural growth, suggesting that the benefits of Fairtrade (fixed minimum price, price premium etc.) indeed help to reduce poverty.