Trade Policy and Access to Intermediate Inputs: Quantifying the Welfare Costs of a Fertilizer Shortage

Devaki Ghose, Eduardo Fraga and Ana Margarida Fernandes

No 12623, CESifo Working Paper Series from CESifo

Abstract: This paper leverages Sri Lanka's 2021 chemical fertilizer import ban to quantify the costs of restricted fertilizer access for agriculture, trade, and welfare. Leveraging trade and production data, satellite-based yield estimates, and event studies, we document sharp declines in fertilizer imports, agricultural output, and exports. A quantitative spatial model of trade and agriculture estimates the ban's average welfare cost at 7.3%, with farmers, estate workers, and fertilizer-intensive regions bearing disproportionate losses. Model-implied partial-equilibrium elasticities line up with the experimental evidence, but once we account for general-equilibrium price and wage adjustments, the elasticities are much smaller—implying that using partial equilibrium estimates to assess large, economy-wide fertilizer shocks (like those seen during recent conflicts) would substantially overstate their effects. Domestic and trade policy interact: by curtailing fertilizer use, the import ban effectively contracted the country's fertilizer subsidy program and its implicit transfers from mobile workers to farmers, thereby mitigating the former's welfare losses.

Keywords: trade; industrial policy; import ban; non-tariff measures; fertilizer; and agriculture (search for similar items in EconPapers)
JEL-codes: D58 F13 F14 O13 Q17 (search for similar items in EconPapers)
Date: 2026
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