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Potential Impact of TPP Trade Agreement on US Bilateral Agricultural Trade: Trade Creation or Trade Diversion?

Author

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  • Yeboah, Osei Agyeman
  • Shaik, Saleem
  • Agyekum, Afia Fosua

Abstract

Trans-Pacific Partnership (TPP) trade agreement is a trade agreement U.S is negotiating with 11 other countries in the Asia-Pacific region (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) to reduce or eliminate tariffs on U.S. products exported to the TPP countries. With TPP, U.S expects to expand its trade with members of the partnership; resulting in GDP growth. However, there exist large concerns about the potential negative impact TPP will have on U.S. agricultural trade. Therefore, this paper examines the potential effect of TPP agreement on U.S agricultural trade using panel VAR and IRF models. A system of three VAR equations is developed for the three endogenous variables agricultural trade, real exchange rate, and the price ratio of imports to exports. In addition, the future pattern of trade is determined using the IRF curves. The lagged coefficients of agricultural trade volumes were significant in all three models implying current trade patterns are influenced by past volumes of trade. Also, the lagged price ratios have negative effect on current agricultural trade volumes as expected. Overall, the study found that a unit shock in price ratios as a result of the TPP agreement leads to a trade creation for U.S in the short run but in the long run, leads to more trade diversion than trade creation.

Suggested Citation

  • Yeboah, Osei Agyeman & Shaik, Saleem & Agyekum, Afia Fosua, 2015. "Potential Impact of TPP Trade Agreement on US Bilateral Agricultural Trade: Trade Creation or Trade Diversion?," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196849, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea15:196849
    DOI: 10.22004/ag.econ.196849
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    References listed on IDEAS

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    1. Zhuang, Renan & Mattson, Jeremy W. & Koo, Won W., 2007. "Implications of the U.S.-Korea Free Trade Agreement for Agriculture and other Sectors of the Economy," Agribusiness & Applied Economics Report 7636, North Dakota State University, Department of Agribusiness and Applied Economics.
    2. Michelle Casario, 1996. "North American Free Trade Agreement Bilateral Trade Effects," Contemporary Economic Policy, Western Economic Association International, vol. 14(1), pages 36-47, January.
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    Cited by:

    1. Sayeeda Bano & Frank Scrimgeour, 2017. "New Zealand and Indian Trade in Agricultural and Manufactured Products: An Empirical Analysis," Working Papers in Economics 17/26, University of Waikato.
    2. Newton, John, 2016. "Price Transmission in Global Dairy Markets," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 19(B), pages 1-15, August.

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    International Relations/Trade;

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