DP5383 | Sugar Prices, Labour Income and Poverty in Brazil

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This paper assesses the impact that a potential liberalization of sugar regimes in OECD countries could have on household labour income and poverty in Brazil. We first estimate the extent of price transmission from world markets to eleven Brazilian States to capture the fact that some local markets may be relatively more isolated from changes in world prices. We then simultaneously estimate the impact that changes in domestic sugar prices have on regional wages and employment depending on worker characteristics. Finally, we measure the impact on household income of a 10% increase in world sugar prices. Results suggest that workers in the sugar sector and in sugar producing regions experience larger wage increases. Employment opportunities are also larger in sugar producing regions. More interestingly, households at the top of the income distribution experience larger income gains due to higher wages, whereas households at the bottom of the distribution experience larger income gains due to movements out of unemployment.