Imported Food Price Shocks and Socio-Political Instability: Do Fiscal Policy and Remittances Matter?

IMF Working Papers, November 13, 2020

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Panel of 101 low- and middle-income countries.
Data covering the period 1980-2012.
Focus on import prices to reflect the vulnerability of importer countries / net-buyer households to food price shocks.
Various econometric approaches applied to deal with endogeneity issues while assessing the impact of food price shocks once fiscal policy and remittances are accounted for.

Import food price shocks strongly increase the likelihood of socio-political instability.
The adverse effect of import food price shocks is greater in countries with lower levels of private credit.
The adverse effect of import food price shocks is greater in countries with lower income per capita.
Remittances seem to dampen the adverse effect of import food price shocks on socio-political instability in almost all countries.
The mitigating role of fiscal policy is significant only in countries with low-levels of private credit.

Strengthening household-level buffers such as remittance channels can help dampen the socio-political destabilizing effects of imported food price shocks.
Fiscal policy mitigation appears most effective in contexts with low private credit; policymakers should consider credit market conditions when designing fiscal responses to food price shocks.
Attention to import-price exposure is important for countries and households that are net food buyers.

Carine Meyimdjui, November 13, 2020 (IMF Working Paper).