# VI. CONCLUSIONS

When international food prices first rose sharply in 2007 and 2008 there was understandable concern that higher prices constituted a grave risk for the world’s poor. While there was much debate about the true extent of these risks, extensive evidence on the relationship between food prices and poverty is only now emerging (Ivanic and Martin 2014; Jacoby 2016). Consistent with recent simulation exercises for subsets of developing countries, this paper finds that increases in international food prices typically predict reductions in national poverty rates in a large sample of developing countries over periods of one to five years.

This core result is subject to two important caveats. First, the magnitudes of these associations are much larger in IV-GMM regressions than in OLS and dynamic panel GMM regressions, but the IV-GMM regressions potentially suffer from a weak instruments problem and certainly suffer from imprecision. Second, in section III we noted that the POVCAL data utilize CPIs to deflate their income and expenditure series, and it is quite possible that these CPIs series understate true increases in the cost of living for the poor during food price increases. While the World Bank has taken some steps to address this problem, these potential biases warrant further investigation.

Bearing these caveats in mind, a negative relationship between changes in food prices and changes in poverty could stem from three factors. First, the most recent estimates suggest that around three-quarters of the world’s poor are still rural (Ravallion et al. 2007) and are therefore either directly dependent on farm income or on non-farm incomes that are likely to be strongly influenced by agricultural production decisions, particularly the demand for labor. Second, we find that higher food prices appear to have produced a positive, large, and relatively quick agricultural supply response in developing countries. Third, there are some indications from Bangladeshi data that wage increases provide compensation for rural wage earners relatively quickly, though there is no evidence that urban workers benefit from any wage response except perhaps in the long run.

These findings potentially point to some important implications. Most importantly, they suggest that international food price movements might be important drivers of national and global poverty trends as well as rural-urban inequality within countries. The data at hand should not be used to draw conclusions on the contributions of higher food prices to global poverty trends, but it is notable that poverty reduction over 2005-2012—a period of relatively high international food prices—was relatively rapid in the developing world. More recently (2013 to early 2016), food prices have plummeted. Time will tell, but the evidence in this paper suggests that declining food prices could have adverse implications for many of the world’s poor by suppressing their most important sources of income: agricultural production and rural wages.

# REFERENCES

Arellano, M., and S. Bond. 1991. “Some tests of specification for panel data: Monte Carlo evidence and an application to employment situations.” _Review of Economics and Statistics_ 58: 277–97.

BBS. 2014. Agricultural Price Series. Dhaka: Bangladesh Bureau of Statistics.

Beegle, K., J. De Weerdt, J. Friedman, and J. Gibson. 2012. “Methods of household consumption measurement through surveys: Experimental results from Tanzania.” _Journal of Development Economics_ 98: 3–18.

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