Restricting trade and reducing variety: Evidence from Ethiopia

The study of consumption in poor households usually focuses on the costs of the consumption basket rather than its composition. In contrast, we investigate the variety in consumption using unique data on a set of remote villages in northwestern Ethiopia. We examine the loss in variety in household consumption in remote locations, relying on a purpose-designed longitudinal survey over two years, where villages differ only in distance to the market and are homogeneous otherwise. In addition, we exploit a change in policy which resulted in a crackdown on informal, unlicensed traders in the second year and affected only the more remote set of villages. Variety in household consumption of manufactures falls with distance and time to travel to the main market town. The crackdown on informal traders, as a quasi-experiment resulting in an increase in travel costs, also leads to a relative decrease in variety consumed of manufactured goods for households served by the unlicensed traders.