The effects of Fair Trade when productivity differences matter

Abstract

This paper uses a heterogeneous rms model to scrutinize the alleged aim of Fair Trade to help the most disadvantaged producers in developing countries. Incorpo- rating important aspects of Fair Trade in a two-good heterogeneous rm model we show that the more productive rms will join Fair Trade arrangements. Presum- ing that the least advantaged producers are those with lowest productivity, it thus appears that Fair Trade cannot live up to its expectations.