Working Paper: NBER ID: w30166
Authors: Sebastian Galiani; Jose Manuel Paz y Mio; Gustavo Torrens
Abstract: We develop a simple model to explain why a powerful importer country like the United States may provide political support for international collusive agreements concerning certain imported commodities (e.g., coffee). We show that helping producer countries organize and enforce collusion might be an attractive instrument to advance important geopolitical goals; for example, to reduce the chances that the producer countries will align with a rival global power (e.g., the Soviet Union during the Cold War). Moreover, using this practice, the cost of collusion is shared with other importers (including allies). Thus, collusion might be a superior strategy to foreign aid (a priori a more direct and efficient instrument), which is riddled with free riding problems. The model sheds light on why the United States supported (or failed to support) international commodity agreements for coffee, sugar, and oil during and immediately after the Cold War period.
Keywords: collusion; geopolitical interests; foreign aid; international commodity agreements
JEL Codes: F02; F1; F5; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U.S. support for collusion (D74) | increased commodity prices (Q02) |
| increased commodity prices (Q02) | facilitates resource transfer to developing countries (F35) |
| facilitates resource transfer to developing countries (F35) | aligns them with U.S. interests (F52) |
| U.S. support for collusion (D74) | increased profits for producer countries (Q02) |
| increased profits for producer countries (Q02) | aligns these countries with U.S. geopolitical interests (F55) |
| internal political constraints in the U.S. (D72) | politically costly to increase foreign aid (F35) |
| politically costly to increase foreign aid (F35) | incentivizes the government to prefer collusion (L12) |
| collusion (D74) | benefits landowners in coffee-producing regions (Q15) |
| benefits landowners in coffee-producing regions (Q15) | crucial in combating communism (F52) |