Productivity Shocks, International Trade and Pass-Through: Evidence from Agriculture

The purpose of this study is to measure the sensitivity of trade to agricul- tural productivity shocks, using country-level data on yield and production combined with bilateral trade data for a wide range of countries and products for the years 2000-2010. We find that traded quantities react in the expected direction but that the magnitudes are smaller than predicted by theory. The results suggest that trade frictions, product differentiation and storage limit the role of international trade as way of coping with production volatility. We find that import unit values increase in years when domestic production is relatively high. We consider alternative explanations for this such as quality sorting or economies of scale in international shipping. Import price declines in years when importers have a poor domestic production may act as a coping mechanism for countries that suffer from adverse food production conditions.