Rural Welfare Effects of Food Price Changes Under Induced Wage Responses: Theory and Evidence for Bangladesh

Welfare distributional effects in a food producing economy of changes in the relative price of food are analyzed, allowing for labor market responses. Conditions for signing the welfare effects are derived for a stylized agricultural household and are tested for Bangladesh. Point estimates suggest that wage responses are unlikely to be strong enough to reject the partial equilibrium view that higher food prices have adverse distributional effects in the short run. Long-run welfare effects do appear to be more favorable to the poor, though it takes three or four years before the rual poor start to gain from a food price increase. Copyright 1990 by Royal Economic Society.