Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93369
Authors: 
Ko, Chia Chiun
Frijters, Paul
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Paper 7988
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.
Subjects: 
competition
import restrictions
exogenous shocks
instrumental variables
surplus
JEL: 
Q17
L2
C26
D61
Document Type: 
Working Paper

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