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When Banana Import Restrictions Lead to Exports: A Tale of Cyclones and Quarantine Policies

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  • Ko, Chia Chiun

    (University of Queensland)

  • Frijters, Paul

    (London School of Economics)

Abstract

This paper examines the welfare loss of import restrictions on bananas in Australia and whether the import restrictions have turned into a particular form of export promotion. We set up a model in which there is free domestic entry, with banana producers accepting losses in normal years, off-set by large profits in years when cyclones destroy a large proportion of the banana plants because of sufficiently low elasticity of demand. Using the cyclones of 2006 and 2011 as exogenous events, we identify the elasticity of demand for bananas in Australia to be around -0.5. We indeed find limited evidence for an ‘over-shooting’ in terms of the supply response after these cyclones, leading to positive exports years after cyclones have hit and re-planted banana plants have become productive. Combining the elasticity estimates with information on turnover, we get an estimated welfare loss of 600 million dollars per year due to banana import restrictions.

Suggested Citation

  • Ko, Chia Chiun & Frijters, Paul, 2014. "When Banana Import Restrictions Lead to Exports: A Tale of Cyclones and Quarantine Policies," IZA Discussion Papers 7988, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp7988
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    References listed on IDEAS

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    1. Armando Garcia Pires, 2012. "International trade and competitiveness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(3), pages 727-763, August.
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    4. Garcia Pires, Armando J., 2013. "Home market effects with endogenous costs of production," Journal of Urban Economics, Elsevier, vol. 74(C), pages 47-58.
    5. A. Colin Cameron & Pravin K. Trivedi, 2010. "Microeconometrics Using Stata, Revised Edition," Stata Press books, StataCorp LP, number musr, March.
    6. Reza Oladi & John Gilbert, 2011. "Monopolistic Competition and North–South Trade," Review of International Economics, Wiley Blackwell, vol. 19(3), pages 459-474, August.
    7. Javelosa, Josyline C. & Schmitz, Andrew, 2006. "Costs and Benefits of a WTO Dispute: Philippine Bananas and the Australian Market," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 7(1), pages 1-26.
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    Cited by:

    1. Mujcic, Redzo, 2014. "Are fruit and vegetables good for our mental and physical health? Panel data evidence from Australia," MPRA Paper 59149, University Library of Munich, Germany.

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    More about this item

    Keywords

    competition; import restrictions; exogenous shocks; instrumental variables; surplus;
    All these keywords.

    JEL classification:

    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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