Spatial Effects of Import Competition: Edible Oils in India

ABSTRACT This paper examines, within a panel data setting, the spatial impacts on prices and on wages, of India's trade liberalization in edible oils. Starting from near‐autarkic policies that prohibited the import of edible oils, imports surged to meet most of the domestic demand following trade liberalization in the 1990s. While the domestic oils sector provides negligible employment, it uses domestically grown nontraded oilseeds, which occupy 14% of cultivated land and are next in importance only to the cereal grains of rice and wheat. These oilseeds are grown in the dryland arid regions where farm incomes are low and precarious. To examine spatial effects, the paper constructs geographically varying exposure to trade shocks that depend on the cultivated area planted with oilseeds. Consistent with a model of spatial price competition, the paper finds greater price impacts in the high oilseed growing regions. On the other hand, spatial impacts on wages are not significant, suggesting labor reallocation. While we do find significantly greater cropping pattern and production responses in the high oilseed growing regions; however, such evidence does not extend to labor reallocation outside agriculture.