Trade Integration and Well-Being: Evidence from Kyrgyz Farmers

The impact of international trade on countries at the macro-level has been extensively studied in the literature. Despite this, no consensus exists on whether trade has an unambiguously positive effect on households at the micro-level. Using evidence from Kyrgyzstan, a former Soviet country in transition, this study identifies the impact of international trade on the well-being of farmers using 'Life in Kyrgyzstan' household survey data for 2012 and 2013. I use the Rajan-Zingales (Am Econ Rev, 88:559-586, 1998) identification strategy and Berman and Couttenier's (Rev Econ Stat 97:758-776, 2015) approach to construct a farm-level measure of demand shock for agricultural commodities and interact it with a measure of natural trade openness. Results show that international trade has a large impact on Kyrgyz farmers. However, the sign of the effect crucially depends on the level of farmers' integration to markets: households living close to oblast centers and/or the cities of Bishkek and Osh, on average, benefit from trade, while those living in remote areas lose from trade. This result may showcase the experiences of many transition economies, which are not yet fully integrated into international markets. Therefore, policies to improve farmers' integration into agricultural markets are crucial to ensure that more households can benefit from trade.