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Transportation Cost, Fuel Subsidies, and Commodity Prices

Published online by Cambridge University Press:  10 September 2020

Habtamu Fuje
Habtamu Fuje*
Affiliation:
Columbia University, USA
*
Email: Habtamu.Fuje@columbia.edu
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Abstract

Despite being at the forefront of the global policy agenda, fuel subsidy reform is understudied and its impact on trade is not particularly well understood. This type of reform could have a huge impact on market performance by increasing transportation costs. I present a case study from Ethiopia, which removed its fuel subsidies and increased the price of diesel price by 39% overnight on 4 October 2008. What is the impact of such an increase in diesel price on transportation costs and hence grain prices in developing countries such as Ethiopia? I use spatial difference-in-difference (sDID) on distance from major markets to assess the effects of removing the fuel subsidy on grain price dispersion. The sDID leverages distance from the national capital to investigate the impact of fuel subsidy reform on markets located at different distances from consumer centers. The results indicate that remote markets experienced high price dispersion compared to markets near the capital.

Keywords

Fuel subsidy reformssDIDprice dispersion
Type
Research Article
Information
World Trade Review , Volume 19 , Special Issue S1: The Trade Impacts of Fossil Fuel Subsidies , July 2020 , pp. s88 - s97
Copyright
Copyright © The Author(s) 2020. Published by Cambridge University Press

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