Trade frictions and domestic food price stability in the presence of large‐scale climate shocks

Abstract

This article examines how trade policies can mitigate the impact of trade frictions that worsen food price spikes when supply shocks are correlated across trading partners. El Niño Southern Oscillation (ENSO) offers a natural experiment of a global climate phenomenon that induces weather correlation across continents. Gravity‐derived maize prices in southern and eastern Africa increase significantly in response to El Niño extremes. Eliminating border friction reduces self‐sufficiency and the magnitude of El Niño‐driven price increases. Either border elimination or diversification of import sources result in lower and less volatile prices regardless of El Niño occurrences. The results highlight that the ability of trade to alleviate price spikes in the focus regions depends much more on the volume of imports than on the location of trading partners.