High Trade Costs and Their Consequences: An Estimated Dynamic Model of African Agricultural Storage and Trade

Abstract

Using a new intranational dataset of monthly grain prices and production and a new approach to identify cost parameters, I estimate and solve a dynamic model of agricultural storage and trade covering all 42 countries of continental sub-Saharan Africa. I find median trade costs over five times higher than elsewhere in the world. The potential welfare gains from reducing these costs are substantial, are driven by lower food prices, and can be achieved efficiently by investing in well-targeted trade corridors. A static annual model underestimates trade costs and welfare effects by failing to identify when trade occurs. (JEL F14, O13, O19, Q11, Q13, Q17)