Essays on macro development, global price shocks and food security

In many low-income African countries, agriculture is the dominant sector in terms of employment and output. What are the key features of the agricultural sector? Two points stand out. First, agriculture is the sector most centrally involved in the production of food – and food accounts for the largest share of expenditures for low-income consumers. Indeed, many people live close to a subsistence level, and food availability is a central concern. Second, and less obviously, agriculture is the sector that most fundamentally uses land as an input. Consequently, production is necessarily dispersed across geographic space. The movement of inputs and outputs – often bulky and/or perishable – is an unavoidable feature of agricultural economies. This in turn implies that spatial frictions play an important role in agricultural economies. Moreover, transport costs are extremely high in many low-income economies – by one estimate, four or five times higher than in the United States. Faced with high spatial frictions, many people in these economies live in quasi-autarky, producing most of the food that they consume. In this thesis, I consider the ways in which low-income economies in Africa are shaped by food dependence and by spatial frictions – and by the interplay between these two characteristics. The thesis consists of three stand-alone essays that address different aspects of development, focusing on spatial frictions and food security. Chapter 1 analyses the role of domestic trade frictions for processes of structural change in an open economy. In a closed economy, low agricultural productivity leads a large share of the population to work in agriculture to produce sufficient food. By contrast, a perfectly open economy with low agricultural productivity may import food to meet subsistence needs, thus releasing labour into other more productive sectors in the economy. I develop a stylised spatial general equilibrium model of a small open economy with spatial heterogeneity and high domestic trade frictions. I find that in such an imperfectly open economy, the food problem can continue to bind. Domestic spatial frictions matter crucially for the sectoral and spatial allocation of economic activity, for the economy’s pattern of international trade, and for spatial differences in food consumption. Chapter 2 (co-authored with Christopher Adam and Douglas Gollin) investigates the impact of global food, fuel and fertiliser price shocks on welfare in lowincome countries – where these shocks are again mediated by the spatial structure of the economy. We develop a spatial general equilibrium model of a small open agricultural economy, calibrated to Tanzanian data, to study the transmission of global price shocks to the consumption patterns of heterogeneous households located in different regions in the domestic economy. Our model simulations show strong spatial heterogeneity in the effects of import price shocks. While urban households’ consumption baskets are more exposed to global food price shocks, remote rural households’ production and consumption are heavily dependent on fuel and fertiliser imports. We use the calibrated model to compare potential mitigation policies and different financing arrangements. Chapter 3 focuses on the prediction of household food insecurity. Using machine learning, I seek to predict household food insecurity using data from household surveys, combined with readily available additional data on weather, prices, and geography. I train and test tree-based ensemble models for the prediction of households’ food security status. The models achieve overall accuracy of 54-65% at a true positive rate of 70%. The approach I develop provides a way to assess household food security without the need for costly and time-consuming primary data collection. In this paper, too, spatial frictions operate in subtle but important ways. In an open economy with well-integrated markets, household food security would essentially be determined by world prices and household income levels. But that is not the case for Tanzania. Markets are poorly integrated. Households and communities face various shocks that shift local (and individual) prices and wages. In short, spatial frictions shape the patterns of food insecurity. The three thesis chapters thus share a common set of issues. All three chapters also focus on Tanzania, a country that is fairly typical of low-income coastal economies in sub-Saharan Africa. The chapters use different methodologies and draw on different tools. Taken together, they seek to contribute to an understanding of development issues in low-income agricultural economies.