Capturing zero‐trade values in gravity equations of trade: an analysis of protectionism in agro‐food sectors

With significant improvements in its theoretical underpinnings, the gravity model has gained renewed interest in the agro‐food trade literature. Notwithstanding, there is a dearth of literature examining the relative trade restrictiveness of tariff barriers across a broad range of agro‐food sectors. This represents an important research gap, which this study sets out to fill. Furthermore, this research reconciles the application of zero‐inflated models with a sectorally disaggregated analysis. More specifically, employing a fully specified gravity equation, a Poisson estimator and variants of the Poisson model (Negative Binomial, Zero‐Inflated Poisson, and Zero‐Inflated Negative Binomial) provide statistically significant and theoretically consistent estimates, while allowing for the inclusion of zero‐trade values. A panel data model with fixed effects is also employed to improve the estimation of the parameters of interest. Estimation results reveal that in the vast majority of sectors examined, import tariffs are found to be statistically significant, whereas export refunds exhibit a statistically smaller role due to the nonsystematic nature of their application in world food markets. Model simulations of tariff barrier eliminations reveal limited trade gains, although there is encouraging evidence of “low” and “lower middle” per capita income country trade gains in wheat, red meat, dairy, sugar, and (particularly) rice markets.     

The role of intellectual property rights in seed technology transfer through trade: evidence from U.S. field crop seed exports

A panel of 134 countries over the period 1985–2010 is used to evaluate the effect of intellectual property rights (IPRs) on field crop seed imports from the United States. Based on estimating a gravity equation using the Heckman selection and Poisson fixed‐effects panel econometric methods, the results indicate that membership of countries in both the International Union for the Protection of New Varieties of Plants and the Trade‐Related Aspects of Intellectual Property Rights Agreement of the World Trade Organization have a positive and statistically significant effect on their imports of U.S. field crop seeds. These results, however, are also sensitive to both income level of importing countries and better enforcement of IPRs by those countries.     

Regional trade agreements and trade in agri-food products: evidence for the European Union from gravity modeling using disaggregated data

The proliferation of regional trade agreements in recent years has intensified the debate on the desirability of these agreements in themselves and their coexistence with multilateral free trade under the WTO. This study contributes to this debate by analyzing trade creation and trade diversion effects of the European Union on trade flows of six major agri‐food products from 1985 to 2000. An extended gravity model is estimated employing pooled data and generalized least squares methods. The results show that the developments in the EU since the mid‐1980s have served to boost agri‐food trade significantly among the members. Some of the growth in intra‐EU trade in agri‐food products came at the expense of nonmembers as the EU reduced the degree of relative openness to trade with nonmembers during this period and diverted trade from the rest of the world into the intra‐EU channels.     

Disaggregated trade and disaggregated currency unions: a ranking of common currency effects

Andrew Rose has long argued that a common currency has a large effect on increasing trade. Recently, Rose has called into question the reliability of this conclusion, as new techniques have emerged for estimating gravity equations. This article uses the sector‐specific gravity model developed by Anderson and Yotov (2010a) to investigate if disaggregated trade can provide a reliable estimate of a common currency's effect. Disaggregating trade alone is insufficient to obtain a reliable estimate of a currency union, regardless of econometric technique, when the effect of a common currency on trade is uniform across all unions. Disaggregating the universe of currency unions with individual effects provides a reliable ranking of currency unions, independent of estimation method, by the effect that each union's currency has on increasing trade. These rankings differ across sectors.     

A study of the impact of direct trade on Taiwan's fishery sector with special reference to the effect of China's WTO accession

After Taiwan became a member of the WTO in 2002, its tariff rates for fishery products decreased by an average of 35.5% from the level in 2001. Direct imports of fishery products from China would be allowed in 2004. These tariff reductions and the relaxation of import restrictions will have a strong effect on Taiwan's fishery sector. In this paper, we present an analysis of how fishery production, prices, input usage, and welfare distribution might react to trade liberalization. In addition to evaluating the overall impact of tariff reduction on Taiwan's fishery sector, we assess the effects of China's WTO accession on the Taiwanese market. We use a fishery sector equilibrium model in which 40 products and 68 fishing activities are identified. The model also includes an import–export subsector, a factor input subsector, and a supply–demand equilibrium condition to analyze the distributions of social welfare due to trade liberalization. Three simulations are conducted to investigate the impact of tariff reductions in 2004, 2 years after Taiwan has jointed the WTO. The results indicate that Taiwan's fishery sector will be adversely affected when it encounters the extremely low import prices of certain fishery products from China. The total production of the fishery sector and its value are predicted to decrease by 4.03% and 9.96%, respectively, in 2004. Aquaculture would suffer the heaviest loss with a 7.48% reduction in the production and a 19.23% reduction in its value. The demand for labor will decrease by 8.71%. The effect is most pronounced in aquaculture in which the demand for labor will go down by 11.40% and the wage rate will decline by 14.28%. To meet the challenge of globalization, the Taiwanese fishery industry will have to diversify, and improve its operational efficiency as well as production and distribution structures for a sustainable development.     

Measuring the impact of road rehabilitation on spatial market efficiency in maize markets in Mozambique

This article analyzes the impact of road rehabilitation on the spatial market efficiency of maize markets in Mozambique. We estimate a modified version of the Parity Bounds Model (PBM) that allows us to test the impact of road rehabilitation on spatial efficiency. This article seeks to contribute to the existing literature in three ways. First, a unique data set, where road rehabilitation episodes between market pairs are identified, is developed. Second, special care is devoted to estimation of transaction costs due to the sensitivity of the PBM model to the quality of transaction costs estimates. Finally, as opposed to most existing literature that focuses on relatively distant markets, the article focuses on spatially closed markets. We find that maize markets tend to be segmented due to high transport costs. Following road rehabilitation, inefficiency and average absolute price differentials tend to decrease, and market pairs have tended to shift toward autarky regimes. Overall, while the results point broadly toward a positive impact of road rehabilitation on spatial efficiency, they are not as strong or as robust as one would like. Large increases in fuel prices likely offset the positive impacts of road rehabilitation on transaction costs, contributing to the increase in the probability of being in an autarky regime.     

Non‐Reciprocal Trade Preferences and the Role of Compliance Costs in the Agricultural Sector: Exports to the EU

We investigate whether non‐reciprocal preferential regimes granted by the European Union have an impact on agricultural export flows from beneficiary countries while accounting for the costs of compliance that may prevent exporters from taking full advantage of potential benefits. Compliance costs are heterogeneous and difficult to measure. We proxy their influence and specify a model that allows for a different preferential margin impact according to the proxy costs. Adopting the gravity framework and using a sample of 554 lines of agricultural products for 131 developing countries in 2002, we find that the costs of compliance play a role in making the schemes work: the lower the costs, the greater the impact of the preferential margins. Moreover, the estimated margin effect differs between different regimes.     

Nontariff measures and product differentiation: Hormone-treated beef trade from the United States and Canada to the European Union

We investigate how a combination of the sanitary and phytosanitary (SPS) measure and product differentiation affects beef trade and the consequences for the United States (US)–European Union (EU) hormone-treated beef trade dispute. We develop a partial equilibrium model to represent the global beef markets and product differentiation between non-hormone-treated beef, hormone-treated beef, and other beef. The results show that removing the SPS measure increases EU hormone-treated beef imports from the US and Canada and decrease beef consumption. In addition, EU hormone-treated beef consumption and imports can be related to a few key indicators of product differentiation. The framework we develop can estimate EU hormone-treated beef consumption and imports based on a minimum of parameters relating to product differentiation, thereby providing useful applied economic analysis of a key trade measure.     

Dynamics of rice prices and agricultural wages in the Philippines

Rice trade liberalization in the Philippines should decrease domestic rice prices impacting both agricultural wages and the welfare of agricultural wage earners. This study examines the short-run and long-run relationship between rice prices and agricultural wages in the Philippines using a neoclassical wage determination model. Three empirical frameworks are used—a cointegration/error correction framework, which assumes nonstationary variables in long-run equilibrium, a first difference model that assumes nonstationary variables but no long-run equilibrium, and an OLS framework that assumes the model variables are stationary. Conclusions are reasonably robust across the three empirical frameworks with wages adjusting positively to rice price changes with a short-run elasticity of 0.29 to 0.57, and a long-run elasticity of 0.70 to 1.0 in preferred models. An analysis of welfare implications suggests that although households that are heavily reliant on agricultural wages for income will be adversely affected by rice price decreases, other households will benefit.     

The effects of the Yuan‐dollar exchange rate on agricultural commodity trade between the United States,China, and their competitors

The United States claims that the undervaluation of Chinese currency, the Yuan, causes U.S. exports to China to decrease and imports from China to increase. Furthermore, because the Yuan is undervalued only against the dollar, U.S. competitors have an advantage in exporting to China and China has an advantage over its competitors in exporting to the United States. This study develops a theoretical model to analyze the effect of the Yuan undervaluation on prices, supply, demand, and trade in the United States, China, and their competitors. This study applies a cointegration/error‐correction model to empirically quantify the short‐run and long‐run effects of the devaluation of the Yuan on important agricultural commodities traded between the United States, China, and their competitors. These commodities include Chinese imports of milk, soybeans, and cotton from the United States and U.S. imports of beans, fruit juice, and fruit from China. The results show that Yuan devaluation causes Chinese imports of U.S. milk, soybeans, and cotton to decline and U.S. imports of beans, fruit juice, and fruit from China to increase in the short run and in the long run.     

The role of institutional quality on the performance in the export of coconut products

The literature that addresses the role of institutions in bilateral trade is extensive. However, research that links institutional quality to specific products and their different levels of value addition is lacking. In this study, we look into institutional quality, based on three indicators from the World Bank's world governance indicators, and its indicator-specific effects on bilateral coconut trade. In particular, we study coconut products with varying degrees of value addition. We use structural gravity models to measure how institutions affect the trade performance of the top 26 coconut producing countries to the top 15 importing economies over the years 1996–2016. Our results suggest that increased government effectiveness enhances trade of high-value products, whereas better voice and accountability scores decrease trade of coconut products with both levels of value addition. No clear trade effect is observed when two countries are more similar in each of the three indicators. We conclude that each indicator has different trade effects on each of the coconut product categories. We end by giving recommendations that will help to improve the coconut export performance in their respective countries and for future research.     

Food price increases and net food importing countries: lessons from the recent past

Recent increases in food and other commodity prices have highlighted concerns that many poor countries are net food importers and higher food prices would worsen their trade balances. In this article, we analyze the changes in food trade balances associated with the 32% increase in food prices from 2000/2001 to 2004/2005. We find a small deterioration in food trade balances of low‐income countries and an improvement in middle‐income countries. The deterioration is most severe for countries in conflict and small island states, so attention should be placed first on these countries and on a few very‐low‐income countries that are also vulnerable. Because low‐income countries as a group had much lower agricultural GDP growth rates than middle‐income countries, the answers to food vulnerability in low‐income countries should probably be addressed within the context of incentives for agricultural production.     

US—Mexico fresh vegetable trade: the effects of trade liberalization and economic growth

Studies of US‐Mexico vegetable trade have generally emphasized the importance of US tariffs in determining the competitive advantage of US producers. Even so, research has identified at least four factors related primarily to the different levels of economic development in the US and Mexico that also have important effects on US‐Mexico agricultural trade in general and fresh vegetable trade in particular. These include the differential growth rates of US and Mexican real wages, production technology (yields), and per capita income as well as cyclical movements in the real Mexican Peso/US Dollar exchange rate. This study examines the relative contribution of NAFTA and the development‐related factors to likely future changes in US fresh vegetable imports from Mexico. The analysis employs an econometric simulation model of US and Mexican markets for five fresh vegetables (tomatoes, cucumbers, squash, bell peppers, and onions) accounting for 80% of US fresh vegetable imports. The results suggest that the 1994–1995 Peso devaluation rather than NAFTA was primarily responsible for the sharp increase in US imports of Mexican vegetables observed in the first years following the implementation of NAFTA. Over time, however, the results suggest that differences in the growth rates of US and Mexican production yields and, to a lesser extent, of US and Mexican real incomes and/or real wage rates could plausibly contribute more to the future growth of US tomato, squash, and onion imports from Mexico than the trade liberalizing effects of NAFTA.     

Explaining National Border Effects in the QUAD Food Trade

Using a ‘structural’ gravity‐like model, this paper first provides estimates of bilateral ‘border effects’ in food trade among the QUAD countries (the US, Canada, Japan and the EU) at the ISIC (International Standard Industrial Classification) four‐digit level (18 food sectors). It then investigates the underlying reasons for border effect, assessing the role played by policy barriers (tariffs, non‐tariff barriers to trade (NTBs) and domestic support) with respect to barriers unrelated to trade policy, such as information‐related costs, cultural proximity and preferences. In contrast to several previous findings, our results show that policy trade barriers, especially in the form of NTBs, are part of the story in explaining national border effects. Interestingly, in all country pair combinations, NTBs significantly dominate the trade reduction effect induced by tariffs. However, results show that elements linked to information‐related costs and consumer preferences matter a great deal in explaining the magnitude of border effects. These findings have implications for the economic and welfare‐related significance of national borders.     

The impact of OECD biofuels policies on developing countries

OECD countries’ biofuels policies, derived from energy and environmental legislation and activated by high oil prices, were the primary cause of not only the sudden spike in grain and oilseed prices in 2007–2008 but also of the ensuing price volatility. Even though developing countries have a comparative advantage in biofuels production, they were shut out of rich countries’ biofuel markets by trade discriminating biofuels policies. Developing countries would not have been able to take full advantage of the price spike in the short run anyway given the low supply elasticities and the long time required for biofuel production to come online, unlike for corn‐ethanol. The controversy over the right price of food is misplaced and policy makers should instead focus on improving biofuels policies, which like their counterpart agricultural policies in previous decades, have damaged the welfare of developing countries.     

The effects of China's growth on the food prices and the food exports of other developing countries

This article explores the impacts of China's growth in the international markets of agricultural products along two dimensions: food price inflation and export growth in other developing countries. China's food imports of vegetable oils have grown dramatically over the last decade, linking China's economic growth to the recent increases in global food prices. If China is a source of global food price inflation, exporting countries will benefit whether they sell directly to China or not. These direct and indirect linkages are explored using a short‐run, partial‐equilibrium model of international trade in agricultural products in which consumer prices and trade costs are derived from bilateral trade flows. China's effects on food prices and exports are estimated by reducing Chinese food expenditures in 2007 by half, roughly China's level of expenditures in 1995. Results indicate that food prices as measured by CES price indexes in developing Asia, Africa, and Latin America would have been reduced by 1.27%, 0.32%, and 0.22%, respectively. China has been an important source of growth for exporters selling directly to China. There is no evidence of export growth due to an overall increase in food prices caused by China's growth.     

Canada's beef exports: Border effects and prospects for market access

This paper examines the magnitudes of border effects on Canada's beef exports, and assesses the prospects for market access. The empirical analysis relies on a gravity model derived from a supply-based framework, and implements different econometric methodologies. It covers the conventional measurement of border effects that is determined relative to the intranational trade baseline. Also, it sets alternative baselines to estimate the wedge between the border effects on beef exports of Canada and those of other countries. The estimated parameters are used to carry out different scenarios to examine the tariff-related and nontariff border effects, and to evaluate the impacts of trade preferences for Canada's bilateral beef exports. The results reveal significant trade impediments facing Canada's bilateral beef exports to many large markets (e.g., EU-15, Japan, Republic of Korea, China, and Russia), and they often indicate that the effects of tariff reductions become considerably larger when coupled with reductions in nontariff impediments. Also, they underscore the significance of North American Free Trade Agreement (NAFTA)’s preferential market access for Canada's beef exports. The export opportunities for the Canadian beef industry that are generated through lower trade barriers would, however, decrease when trade barriers facing other beef-exporting countries are reduced.     

Trade Creation and Diversion Effects of Preferential Trade Associations on Agricultural and Food Trade

Agricultural market distortions remain a major focus of contention in world trade negotiations. Estimates of the effects of liberalising current agricultural trade restrictions indicate an approximately $385 billion increase in global welfare, with the disproportionate share of the benefit being enjoyed by developing countries. In response to difficulties in adopting agricultural trade reforms, individual groups of countries have formed multiple bilateral and regional preferential trade agreements (PTA) to enhance trade among members. Few sectoral analyses exist of the effects on agricultural and food product trade of PTAs. This research uses a gravity model to isolate the effects of various PTAs on both intra‐ and extra‐bloc agricultural and food product trade for three time periods: 1995, 2000 and 2004. Findings strongly support PTA benefits in terms of increased intra‐bloc trade in both sectors. The findings also generally support trade creation in agricultural products. PTA membership was also associated with food trade creation in most cases, although diversion was observed for several associations composed primarily of developing countries.