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Abstract

World food prices have experienced dramatic increases in recent years. These “shocks” affect food importers and exporters alike. Vietnam is a major exporter of rice, and rice is also a key item in domestic production, employment and consumption. Accordingly, rice price shocks from the world market have general equilibrium impacts and as such, their implications for household welfare are not known ex ante. In this paper we first present a simple framework for understanding the direct and indirect welfare effects of a global market shock of this kind. Second, we quantify the transmission of the price shock from global indicator prices to domestic markets. Third, we then we use an applied general equilibrium (AGE) model to simulate the effects of domestic price changes in more detail. Fourth, a recursive mapping to a large nationally representative living standards survey permits us to identify in detail the ceteris paribus effects of the shock on household incomes and welfare. In this analysis, interregional and intersectoral adjustments in the labor market emerge as key channels transmitting the effects of global price shocks across sectors and among households.

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