A generalized Armington trade model: Respecification

Even if the original version of the Armington model is simple and plausible in estimation, the single CES and homotheticity assumptions are too restrictive for practical application and give biased price elasticities. This paper develops a generalized Armington model, which relaxes the single CES and homotheticity restrictions, and includes the Armington model as a special case. The Armington and generalized Armington trade models are applied to the Japanese meat import demand to demonstrate their performance. The empirical results rejected the two assumptions imposed on the Armington model. The generalized Armington model provides an alternative to the restrictive but indispensable Armington model.     

International Poultry Trade and the GATT

This research simulates and evaluates present and future trends in international poultry trade utilizing the Armington framework which allows traded goods to be differentiated by their country of origin. Parameters in the Armington model were estimated, and the trade distorting impacts of tariffs and export subsidies on the international poultry market were simulated. Results illustrate the potential impacts of increased trade protection on future market potential oversees. They also demonstrate the importance of a meaningful agreement on agricultural trade in the Uruguay Round of the GATT.     

Alternative Methods for Estimating Price Elasticities of Imports

Abstract

This article compares three commonly-used methods for estimating import price elasticities: (1) trade-weighted price elasticities of domestic demand and supply along with price transmission; (2) direct estimates based on ad hoc import demands; and (3) Armington model estimates. Using data from El Salvador's grain markets (white maize, red beans, and rice), the results indicate that the second method provides the most reliable estimates and that the Armington procedure may not be appropriate for estimations of this type. However, the first method offers the best guesstimates to assess potential rather than historical import response as trade is liberalized.     

International trade in a differentiated good: Trade elasticities in the world rice market

In many previous rice trade models, the commodity has been regarded as a homogeneous product. However, homogeneity is not an appropriate assumption, given the various types of rice that are traded and consumed. Parameters estimated from these models, therefore, do not reflect the real world market for rice and, hence, may mislead decision makers who use the results for policy evaluation purposes. This study uses an Armington approach to model the world rice trade as a differential good market and to derive trade elasticity parameters.     

Decomposing changes in agricultural price gaps: an application to Russia

The article develops a method for decomposing changes in agricultural price gaps, defined as the difference between a commodity's domestic producer and border prices. We use OECD's procedure for decomposing changes in the market price support part of producer support estimates as the starting point for our decomposition method, and our method provides a basis for critiquing OECD's decomposition approach. The transmission of changes in border prices (world prices and the exchange rate) to domestic prices is a key element in the decomposition. The method is demonstrated using Russian agricultural price gaps. The results support the argument that for Russian agriculture during the transition period, the main cause of changes in price gaps has been incomplete transmission of changes in the exchange rate to domestic prices, and where the weak transmission results mainly not from policy intervention, but rather from deficient market conditions, in particular poor market infrastructure. The policy implication is that underdeveloped infrastructure has strongly limited the benefits to the Russian economy from agricultural trade liberalization.     

The application of trade and growth theories to agriculture: a survey

This article reviews a broad range of theoretical concepts available to explain international trade in agricultural and food products. For many years agricultural trade analyses were largely based on traditional perceptions of comparative advantage following neoclassical theory. Observations of agricultural trade suggest, however, that concepts from modern trade and growth theories are increasingly relevant. This survey demonstrates that many opportunities exist for applying these new theories to the modern food economy.     

INDUSTRIAL ORGANISATION FOUNDATIONS OF TRADE POLICY MODELLING*

General equilibrium models of Canada/US free trade have produced a wide range of predictions of the impact on the Canadian economy. This paper analyses the models from an 'industrial organisation' perspective, focusing on differences in assumptions about market elasticities and pricing behaviour. The approach succeeds in encompassing the range of predictions from the models. The results have implications for agricultural policy modelling.     

Measuring the Trade Restrictiveness of Domestic Support using the EU Common Agricultural Policy as an Example

We develop an index that measures the overall trade effects of domestic support payments. Our index is based on the Mercantilist Trade Restrictiveness Index (MTRI) and is capable of analysing the development of the trade restrictiveness of domestic support payments over time and across countries. It facilitates the evaluation of agricultural policy reforms introducing changes in the composition of domestic support payments. We conduct this analysis with a computable general equilibrium model that is extended to depict detailed agricultural policies using the Common Agricultural Policy of the European Union (EU) as an example. For the representation of agricultural policies, we updated the underlying database by incorporating detailed EU domestic support payments taken from the OECD Producer Support Estimate (PSE) tables and reconcile PSE data with the WTO classification scheme. Our index confirms a decrease in trade distortion stemming from the implementation of decoupled support in the EU. In addition, the trade-equivalent protection rate shows that the trade restrictiveness of domestic support payments depends on the assumptions made with regard to the degree of decoupling of those payments.     

Why do global long‐term scenarios for agriculture differ? An overview of the AgMIP Global Economic Model Intercomparison

Recent studies assessing plausible futures for agricultural markets and global food security have had contradictory outcomes. To advance our understanding of the sources of the differences, 10 global economic models that produce long‐term scenarios were asked to compare a reference scenario with alternate socioeconomic, climate change, and bioenergy scenarios using a common set of key drivers. Several key conclusions emerge from this exercise: First, for a comparison of scenario results to be meaningful, a careful analysis of the interpretation of the relevant model variables is essential. For instance, the use of “real world commodity prices” differs widely across models, and comparing the prices without accounting for their different meanings can lead to misleading results. Second, results suggest that, once some key assumptions are harmonized, the variability in general trends across models declines but remains important. For example, given the common assumptions of the reference scenario, models show average annual rates of changes of real global producer prices for agricultural products on average ranging between ?0.4% and +0.7% between the 2005 base year and 2050. This compares to an average decline of real agricultural prices of 4% p.a. between the 1960s and the 2000s. Several other common trends are shown, for example, relating to key global growth areas for agricultural production and consumption. Third, differences in basic model parameters such as income and price elasticities, sometimes hidden in the way market behavior is modeled, result in significant differences in the details. Fourth, the analysis shows that agro‐economic modelers aiming to inform the agricultural and development policy debate require better data and analysis on both economic behavior and biophysical drivers. More interdisciplinary modeling efforts are required to cross‐fertilize analyses at different scales.     

Decomposing Changes in Agricultural Producer Prices

This article develops a method for decomposing changes in agricultural producer prices. The method builds on a procedure used by the World Bank, with the main variables in the decomposition being trade prices, exchange rates and trade policies. We expand on the World Bank decomposition procedure by broadening the analysis of policy effects, adding the effect from incomplete transmission of changes in trade prices and exchange rates to producer prices, and handling the effect on prices from interactions between variables as they change simultaneously. Decomposition results are presented for various commodities for the major emerging markets of Brazil, China and South Africa.     

THE INFLUENCE OF THE AGRI-MONETARY SYSTEM ON AGRICULTURAL TRADE IN THE EC: THE CASE OF SUGAR

It is hypothesised that the mechanics of the agri-monetary system impose shocks on EC agricultural markets which influence the Community's agricultural trade flows. A model illustrating links between agri-monetary changes and trade flows of sugar is presented. Empirical tests suggest that agri-monetary changes influence the volume and timing of sugar trade. Hypotheses relating the strength of this influence to self-sufficiency and other factors specific to Member States are discussed, as are the welfare costs of agri-monetary trade distortions. Although these welfare costs are unlikely to spark agrimonetary reform, they could be given consideration in the reform made inevitable by the Single European Market.     

Integrated regional impact assessment of agricultural trade and domestic environmental policies

It remains challenging to derive general findings and conclusions from either economic theory or empirical studies on the relationship between international trade and the regional environment. Consequently, we aim to analyse environmental effects of agricultural trade policies in the Austrian Marchfeld region. We apply an integrated modelling framework that accounts for heterogeneity in agricultural production and environmental outcomes. Scenario analysis is applied to assess regional impacts of different trade policy scenarios. Sensitivity analyses reveal the relative influence of model parameters on outputs. The results indicate that lower domestic tariffs have small beneficial effects on the regional environment. The regional environmental impacts highly depend on the changes in world crop prices through global trade agreements. A laissez-faire market scenario that includes the elimination of trade barriers and agri-environmental payments (AEPs) leads to substantial environmental deterioration. Hence, the alignment of AEPs with WTO trading rules remains an important issue in the trade and environment debate.     

Time-varying Armington elasticity and country-of-origin bias: from the dynamic perspective of the Japanese demand for beef imports

Elasticities of substitution, often called Armington elasticities, reflect incomplete substitutability because of perceived product characteristics. This study divides the determinants of the Japanese demand for beef imports into two factors: (i) substitution elasticity and (ii) country-of-origin bias, and demonstrate how these measurements are associated with trade policy and food scare events. The Japanese beef industry serves as a case study to evaluate the multifold impact of import liberalisation and a series of bovine spongiform encephalopathy (BSE) outbreaks. A time-varying parameter model is used to shed light on the dynamic effects of the import liberalisation and BSE outbreaks on the measurements. The estimation results reveal that the estimated substitutability and country-of-origin bias are very sensitive to the BSE cases, but not to the process of trade liberalisation. The results also confirm that as a result of the BSE outbreaks, the major factor of the Japanese demand for beef imports has changed from relative prices to the country-of-origin effect, thereby emphasising the importance of a traceability system and promotional activities, which would help in the formation of the country-of-origin effect.     

Addressing climate change cause and effect on land cover and land use in South Asia

This paper evaluates the role of trade liberalization and agricultural intensification in mitigating climate change cause and effects on land use and emissions using a computable general equilibrium model. Our results indicate that cropland expansion triggered by climate-induced crop productivity changes results in deforestation and increases emissions in South Asia and globally. Global full trade liberalization on all goods is the optimum policy for South Asia despite significant global deforestation, but for the world, unilateral partial trade liberalization on all goods is a more appropriate policy while ensuring a considerable emissions reduction for South Asia. These results indicate that mitigation responses to climate change are location specific and no one trade policy is suitable at the regional and global levels. Lastly, agricultural intensification by improving productivity growth is the best strategy in land-based emissions mitigation, thereby avoiding the transformation of forest and pasture lands for agricultural cultivation both at regional and global levels.     

Beyond the visual dimension: Using ideal type narratives to analyse people's assessments of landscape scenarios

In this study it was investigated how local stakeholders in a Swiss mountain area assess visual and non-visual aspects of different landscape scenarios, taking into account their values and assumptions. For this analysis, a procedure was developed that involves a novel tool in landscape research, ideal type narratives. Three scenarios of agricultural and conservation policy developments were drawn up for the year 2030, and their assumed landscape consequences for the study area were visualised using computer-aided photo-editing. The scenarios were rated by stakeholders both in terms of their visual and non-visual consequences, and discussed in a group meeting. The results suggest that most stakeholders prefer a highly structured cultural landscape, similar to the landscape prevalent in the area before the onset of agricultural mechanisation. Stakeholders are, however, not willing to pay the social, economic and cultural costs that restoring such a landscape would entail; in an overall assessment they prefer a Business as Usual scenario that assumes a future life situation similar to the present one.     

Exchange rate uncertainty and agricultural trade: panel cointegration analysis for Turkey

This study addresses the impact of exchange rate levels and uncertainty on bilateral agricultural trade between Turkey and 20 major trading partners, using panel cointegration analysis for annual data covering the period 1980–2005. Results show that (i) the exchange rate level is less robustly linked to trade volumes than is exchange rate uncertainty, (ii) exchange rate uncertainty is associated with smaller trade volumes in both directions, but more so for imports than for exports, and (iii) income growth in Turkey is associated with greater imports, just as income growth among trading partners is associated with greater exports. These findings provide some clues for understanding the recent patterns of Turkish agricultural trade, and suggest directions for future research.     

Productivity growth and the returns from public investment in R&D in Australian broadacre agriculture

Investment in R&D has long been regarded as an important source of productivity growth in Australian agriculture. Perhaps because research lags are long, current investment in R&D is monitored closely. Investment in R&D has been flat while productivity growth has remained strong, relative both to other sectors of the Australian economy and to the agricultural sectors of other countries. Such productivity growth, at a time when the decline in terms of trade facing Australian farmers has slowed, may have enhanced the competitiveness of Australian agriculture. The econometric results presented here suggest no evidence of a decline in the returns from research from the 15 to 40 per cent per annum range estimated by Mullen and Cox. In fact the marginal impact of research increases with research over the range of investment levels experienced from 1953 to 2000, a finding which lends support to the view that there is underinvestment in agricultural research. These results were obtained from econometric models which maintain strong assumptions about how investments in research and extension translate into changes in TFP. Hence some caution in interpreting the results is warranted.     

A Comparative Static Analysis of European Union Tariff and Support Policies for Canned Pears

Abstract

A nonlinear, partial equilibrium, Armington model of the European Union canned pear market was built and simulated for reductions in specific EU policies and for reductions in selected combinations of these policies relevant to canned pears: import tariffs, factor subsidies, and an output subsidy. Effects of these policy reductions on the following EU canned pear market variables were comparatively analyzed: own-product consumption, imports, exports, and price. Comparative analyses of these policy-specific effects were conducted from two viewpoints: the absolute magnitudes of completely eliminating, and the marginal effects of incrementally reducing, the EU policies and policy combinations. Among other findings, results suggest that EU tariff reduction enhances EU imports more than EU subsidy reduction, and that EU subsidy reduction increases EU prices more effectively than reducing EU tariffs.     

Trade diversion and antidumping effectiveness: insights from a residual demand model

A residual demand model is developed to predict the likely effects of an antidumping duty in the presence of trade diversion. A key insight is that the ability of an AD duty to increase the welfare of producers in the country imposing the duty hinges on the import supply elasticity for product from non‐named sources. The only instance in which this is not true is when supply for product from the named source is perfectly elastic. In this case, the welfare gain to domestic producers is maximised irrespective of the supply elasticity for imports from non‐named sources. A comparison of the residual demand model with the Armington model suggests the latter significantly understates both trade diversion and domestic producer gains from the duty.     

Russian Roulette at the Trade Table: A Specific Factors CGE Analysis of an Agri‐food Import Ban

In the summer of 2014 Russia imposed a ban on most agri‐food products from countries enforcing Ukraine‐related sanctions against Russia. We use a specific factors computable general equilibrium (CGE) model to simulate the short‐run impact of this retaliatory policy. The baseline is carefully designed to isolate the impacts of the ban on the European Union (EU), Russia itself and a selection of key trade partners. The modelling of the ban follows a novel approach, where it is treated as a loss of established trade preferences via reductions in consumer utility in the Armington import function. Not surprisingly, the results indicate that Russia bears the highest income loss (about €3.4 billion) while the EU recovers part of its lost trade through expansion of exports to other markets. An ex‐post comparison between simulation results and observed trade data reveals the model predictions to be broadly accurate, thereby validating the robustness of the modelling approach.