Understanding Fair Trade

Fair Trade is a social initiative that attempts to aid small producers and workers in developing countries, by offering them better terms of trade and helping them to organize, both economically and politically.  It works through a certification system overseen by nongovernmental organizations, such as Fairtrade International.   A certified product signals to consumers that producers were paid a minimum price and that the product meets specific requirements for certification.  Most of the products are commodities, including coffee, tea, cocoa, flowers, sugar, fruits, gold, and honey.  Coffee has received most of the attention from research due to the large number of producers located in various developing countries.  Over time, researchers in economics have asked important questions about the effectiveness of Fair Trade in achieving its proposed economic development goals and the long term implications of the certification system.

Fair Trade sceptics are concerned about the distortions that price floors and the requirement that firms be ‘small’ to qualify for benefits introduce to incentives.  For example, it has been argued that producers will not seek to improve their production methods because remaining small enables them to keep Fair Trade certification (and the rents from the price floor). This perpetuation of inefficiency, it is argued, will prevent them from lifting themselves out of poverty. Sceptics also claim that a higher price can lead to over-supply and create additional distortions in the world market.

One response to the latter criticism is a theoretical model showing that when a Fair Trade certified product is treated as a differentiated product, with distinct supply and demand curves, and the number of Fair Trade contracts satisfies demand, the certification system does not result in over-supply.  If the intermediaries buying the certified products are oligopsonistic, the Fair Trade system enables producers to recover profit from the intermediaries.  Although this model, as well as other models in the literature, rely on the assumption that consumers care about the production process being socially or environmentally responsible, the market outcome improves without introducing additional distortions.  Other economic models that explore how free entry dissipates rents in the long run derive different conclusions. One model shows that, if demand is inelastic, producers have an incentive to continue entering the market until the expected benefit of Fair Trade certification equals the cost of acquiring it.  This means that the rents from the price floor are channeled towards the costs of certification, which would defeat the purpose of Fair Trade in helping poor producers.  However, this detrimental outcome is not assured in an environment where there are barriers to entry, such as an upper limit to firm size.

Finally, there are methodological issues related to the empirical evaluation of Fair Trade.  It is well documented in the literature that certified producers sell and produce more with better quality than non-certified ones.  However, it is unclear whether there is an omitted variable that causes them to produce more or, alternatively, whether the certification itself causes them to perform better.  Moreover, it is unclear what is driving producers into the certification process.  On the negative side, they are small, have limited access to credit, and limited market access.  On the positive side, they are found to be more entrepreneurial, have better organizational skills, and are more willing to co-operate with others.  This mix of findings suggests that some aspects of Fair Trade and its consequences are not yet well understood and more research in the topic is necessary.

Booth, Phlip and Linda Whtstone (2007) “Half a Cheer for Fair Trade,” Economic Affairs, 27 (2): 29-36. [working paper]

Collier, Paul (2007) The Bottom Billion, New York: Oxford University Press.

de Janvry, Alain, Craig McIntosh and Elizabeth Sadoulet (2015) “Fair Trade and Free Entry: Can a Disequilibrium Market Serve as a Development Tool?The Review of Economics and Statistics, 97 (3): 567-573. [working paper]

Dragusanu Raluca and Nathan Nunn (2015) “The Impacts of Fair Trade Certification: Evidence From Coffee Producers in Costa Rica,” Working Paper

Dragusanu, Raluca, Daniele Giovannucci and Nathan Nunn (2014) “The Economics of Fair Trade,” Journal of Economic Perspectives, 28 (3): 217-236.

Griffiths, Peter (2012) “Ethical Objections to Fairtrade,” Journal of Business Ethics, 105 (3): 357-373. [working paper]

Podhorsky, Andrea (2013) “Certification Programs and North-South Trade,” Journal of Public Economics 108: 90-104.

Podhorsky, Andrea (2015) “A Positive Analysis of Fairtrade Certification,” Journal of Development Economics, 116: 169-185.

New Working Papers June 2017

The following working papers have recently been added to our working papers page

Bernard, Andrew B. and Swati Dhingra (2016) “Importers, Exporters and the Division of the Gains from Trade

Beshkar, Mostafa and Ahmad Lashkaripour (2017) “Interdependence of Trade Policies in General Equilibrium

Fan, Haichao, Yao Amber Li and Stephen R. Yeaple (2016) “On the Relationship Between Quality and Productivity: Evidence from China’s Accession to the WTO

Fergusson, Leopoldo, Carlos Molina and Juan Feipe Riano (2017) “I sell my vote, and so what? A new database and evidence from Colombia

Richard Baldwin – The Great Convergence: Information Technology and the New Globalization

“Between 1820 and 1990, the share of world income going to today’s wealthy nations soared from twenty percent to almost seventy. Since then, that share has plummeted to where it was in 1900. As Richard Baldwin explains, this reversal of fortune reflects a new age of globalization that is drastically different from the old. In the 1800s, globalization leaped forward when steam power and international peace lowered the costs of moving goods across borders. This triggered a self-fueling cycle of industrial agglomeration and growth that propelled today’s rich nations to dominance. That was the Great Divergence. The new globalization is driven by information technology, which has radically reduced the cost of moving ideas across borders…” [Publisher’s book website]

Reviews / Comments

Book review by Diane Coyle, November 2016

Book review by Bradford Delong, March 2017

Book review by The Economist, November 2016

Book review by Juliet Webster in The Times, January 2017

Book review by Martin Wolf in the Financial Times, December 2016


Welcome new members – June 2017

We would like to welcome the following new members of the InsTED network:

Prof Michiel Gerritse (University of Groningen) His research  interest is international economics broadly in trade, finance, geography, macroeconomics and development.

Prof Gianmarco Ottaviano (London School of Economics and Political Science) His research interests are international trade, multinationals, economic integration, immigration and economic geography.

Fully funded Economics studentships available at the University of Edinburgh

The School of Economics at the University of Edinburgh is looking for outstanding candidates to take up fully funded PhD opportunities.

We offer supervision on a wide range of topics, with particular strengths in:

  • Economic Theory (contract theory, game theory, micro and macro)
  • Labour Economics (micro and macro)
  • Applied Econometrics (micro, macro, health and education)
  • Behavioural and Experimental Economics

Our doctoral programme

Our doctoral programme is structured to ensure that you receive training throughout your first year including in the following areas: microeconomics, macroeconomics and econometrics. You will also begin to develop your research. After first year, you will focus on your research and the development of your thesis.

Our research community

You will join an active research community and participate in regular seminars hosted by academics of international reputation, workshops and discussion groups.

Entrance requirements

The normal requirement for entry to the programme is a distinction in a masters in economics from a UK University or its international equivalent. If English is not your first language, you will need to demonstrate proficiency in English. More information about entrance requirements are available here.

In addition, all applicants’ research interests must match with our own. Applicants are encouraged to visit our website to see areas in which we can offer supervision. For more information, please visit this page

Applicants will be asked to write a short research summary (up to 1500 words) explaining how their research interests match our own and briefly demonstrating their understanding of the topic, primary literature and how they might approach their given topic.

How to apply

For more information about our programme you can visit the Economics prospective website

Interested candidates can also contact Fiona Ross at  for further information.

You can submit an application, along with your transcript, degree certificate and research summary, by visiting the Economics degree page

* The University of Edinburgh is consistently ranked within the world’s top 50 universities.

Closing date

Early applications are encouraged. Applications will be considered on a rolling basis but with an absolute deadline of 30th June 2017.

6th Annual CIRANO-Sam M. Walton College of Business Workshop on Networks in Trade and Finance Call For Papers

On behalf of CIRANO and the Sam M. Walton College of Business at the University of Arkansas, the organizers invite papers for the 6th Annual Workshop on Networks in Trade and Finance to be held Friday September 29 and Saturday September 30, 2017 in Montreal, Canada. This conference builds on the successful CIRANO Workshops on Networks in Trade and Finance that have taken place in Montreal and Fayetteville, Arkansas over the last five years. The program for the workshop in October 2016 can be viewed at

THEME: Networks are everywhere. Global trade, supply chains, financial markets, the World Wide Web, professional and social communities are examples of interconnected systems that are important to the structure and function of the modern world. Networks are a general yet powerful means of representing patterns of connections or interactions between parts of such systems. The network approach facilitates an understanding of mechanisms and reveals patterns in the data that are difficult to see using other approaches. Of particular recent interest is the role of networks in facilitating the development and dissemination of innovation and new technologies. With this as the leitmotiv, this workshop aims to bring together a group of researchers in the related areas of trade, finance, economic development, sociology, and business, with the following goals:
– Demonstrate the value of the network approach for generating novel insights into these areas.
– Foster a cross-disciplinary exchange of ideas and methods within the field of researchers in these areas.
– Explore the potential for real-world applications of the network approach that will be of value to practitioners in various fields of business and government, such as finance, logistics, healthcare, transportation, communication, economic development, and social media.

Both theoretical and applied studies are welcomed.

PAPER SUBMISSION PROCEDURE: Extended abstracts or papers (completed papers preferred) should be sent to the e-mail address networks.conference@cirano.qc.ca before July 15, 2017. The workshop program will be determined by July 30. For general questions regarding the conference email kali@uark.edu

SUPPORT: There will be no registration or other fees. For those on the workshop program the organizers will provide accommodation for two nights in Montreal. Lunch and dinner during the workshop will be provided for all registered participants. The conference will take place from 9am to 5pm on Friday September 29 and from 9am to 1pm on Saturday September 30. The conference dinner will be on Friday September 29.

Raja Kali, University of Arkansas and CIRANO
Ari Van Assche, HEC Montreal and CIRANO
Ekaterina Turkina, HEC Montreal
Arya Gaduh, University of Arkansas
Andrea Civelli, University of Arkansas

Research Fellowships UNSW SYDNEY

Economics – Resources
Economics – Public Finance
Economics – Microeconomics
Economics – Macroeconomics
Economics – International
Economics – Industrial Organization
Economics – General

  • One of Australia’s leading research & teaching universities
  • Vibrant campus life with a strong sense of community & inclusion
  • Enjoy a career that makes a difference by collaborating & learning from the best

At UNSW, we pride ourselves on being a workplace where the best people come to do their best work.

UNSW is already at the cutting edge of academia with a strong and growing international reputation. A global leader in discovery, innovation, impact, education and thought leadership, can make an enormous differences to the lives of people in Australia and around the world. The announcement of our largest-ever academic recruitment initiative is a key step in augmenting our existing world-leading research capabilities.

About the role

Appointment level will be negotiable at either academic levels A, B C or D prior to appointment.

The UNSW Scientia Fellowship Program is one of the cornerstones of UNSW’s 2025 Strategy. The project’s aim is to attract and retain the best and brightest people, with outstanding research track records, to UNSW. A primary goal of the scheme is to enhance UNSW research performance by attracting and retaining exceptional researchers at the highest level of performance.

About the successful applicant

To be successful in this role you will:

  • be a researcher performing at the highest level of the equivalent academic level in the relevant discipline (relative to opportunity) – Levels A-D
  • undertake significant, innovative research which is aligned with the research areas identified for the 2018 round
  • be aligned with the strategic goals of UNSW’s 2025 Strategy

For general information about the scheme, including guidelines and FAQs please visit

For any general enquiries about the scheme not covered by the guidelines and FAQs please contact:

Jul. 12, 2017

Diversity and Inclusion at UNSW

UNSW’s 2025 Strategy states that our aspiration is to be recognised as an international exemplar in equity, diversity and inclusion and an employer of choice for people from diverse backgrounds. Our aim is to achieve this by embracing the diversity and cultural richness of our communities; ensuring that our staff and students can achieve their full potential in a supportive and inclusive work environment. Our diversity commitment aligns to our strong sense of social responsibility and our belief that a diverse workforce enhances our ability to deliver world class research, teaching excellence and thought leadership.