Domestic Trade Frictions and Agriculture

I develop a model of heterogeneous land quality and study the relation between trade, farming productivity and welfare in Peru, where high domestic and international trade costs pose a major barrier to efficient farming. To quantify the model, I use a new dataset on spatially disaggregated crop prices, yields and land allocations. I then use the model to measure the welfare and productivity effects of two shocks to trade opportunities. First, I study a policy of paving roads, which raises average productivity and welfare (16% and 4%), but causes some regions to lose due to increased competition from remote suppliers. Second, I study a shock to international prices that spreads unevenly across regions, generates heterogeneous price adjustments and, therefore, has distributional consequences that differ from those of a standard small