Discussion paper

DP13169 Restricting Trade and Reducing Variety: Evidence from Ethiopia

The study of consumption in poor households usually focuses on the costs of the consumption
basket rather than its composition. In contrast, we investigate the variety in
consumption using data from rural Ethiopia. We examine the loss in variety in remote
locations, relying on a purpose-designed longitudinal survey over two years, where villages
differ only in distance to the market and are homogenous otherwise. In addition, we exploit
a change in policy which resulted in a crackdown on informal or unlicensed traders in the
second year but which affected only the more remote set of villages and resulted in a fall in
availability in these villages. We examine the welfare impact of the crackdown on traders
by calculating the compensating and equivalent variation and find a fall in welfare between
11% and 13% of incomes for households affected by the crackdown, mostly driven by the
resultant fall in varieties available. The welfare costs of remoteness are driven by not just
the fall in consumption but also the fall in variety in consumption.


Krishnan, P and P Zhang (2018), ‘DP13169 Restricting Trade and Reducing Variety: Evidence from Ethiopia ‘, CEPR Discussion Paper No. 13169. CEPR Press, Paris & London. https://cepr.org/publications/dp13169