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Reciprocal Trade Agreements: Impacts on U.S. and Foreign Suppliers in Commodity and Manufactured Food Markets

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  • Vollrath, Thomas L.
  • Grant, Jason H.
  • Hallahan, Charles B.

Abstract

Reciprocal trade agreements (RTAs), which grant special preferences to members, affect the pattern and volume of bilateral trade in global markets. This study uses the gravity framework and panel data depicting annual trade between 69 countries over 31 years to examine how 11 RTAs have shaped U.S. and other suppliers’ exports of commodity and manufactured foods. Empirical results show that joint RTA membership enabled exporters to increase their trade with member country importers in the two food markets. The few agreements that failed to have a positive effect on member trade in either commodity food or manufactured food involve developing countries that typically grant very limited cross-border trade preference to member countries. Interestingly, model results indicate that RTAs can be a vehicle to increase trade externally. Nine of the 11 RTAs also expanded exports externally to nonmember countries, albeit to a lesser degree than with member importers. In some cases, however, nonmember exporters of food bore the cost of the RTA-induced expansion of trade. Five RTAs lowered food imports from nonmember suppliers. The adverse effects on nonmember suppliers were more pronounced for the United States than for other competitors.

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Bibliographic Info

Paper provided by United States Department of Agriculture, Economic Research Service in its series Economic Research Report with number 131618.

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Date of creation: Aug 2012
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Handle: RePEc:ags:uersrr:131618

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Keywords: Trade policy; reciprocal trade agreements; agricultural and food trade; gravity models; Agricultural and Food Policy; International Development; International Relations/Trade;

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  1. Jason H. Grant & Dayton M. Lambert, 2008. "Do Regional Trade Agreements Increase Members' Agricultural Trade?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 90(3), pages 765-782.
  2. Lin Sun & Michael R. Reed, 2010. "Impacts of Free Trade Agreements on Agricultural Trade Creation and Trade Diversion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 92(5), pages 1351-1363.
  3. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, December.
  4. Vollrath, Thomas L. & Hallahan, Charles B., 2011. "Reciprocal Trade Agreements: Impacts on Bilateral Trade Expansion and Contraction in the World Agricultural Marketplace," Economic Research Report, United States Department of Agriculture, Economic Research Service 102755, United States Department of Agriculture, Economic Research Service.
  5. Lucian Cernat, 2001. "ASSESSING REGIONAL TRADE ARRANGEMENTS: ARE SOUTH–SOUTH RTAs MORE TRADE DIVERTING?," International Trade, EconWPA 0109001, EconWPA.
  6. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January.
  7. Scott L. Baier & Jeffrey H. Bergstrand & Peter Egger & Patrick A. McLaughlin, 2008. "Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism," The World Economy, Wiley Blackwell, vol. 31(4), pages 461-497, 04.
  8. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
  9. Anne O. Krueger, 1999. "Trade Creation and Trade Diversion Under NAFTA," NBER Working Papers 7429, National Bureau of Economic Research, Inc.
  10. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
  11. Thomas L. Vollrath & Charles B. Hallahan & Mark J. Gehlhar, 2006. "Consumer Demand and Cost Factors Shape the Global Trade Network in Commodity and Manufactured Foods," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(4), pages 497-511, December.
  12. David Lambert & Shahera McKoy, 2009. "Trade Creation and Diversion Effects of Preferential Trade Associations on Agricultural and Food Trade," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(1), pages 17-39.
  13. Guedae Cho & Ian M. Sheldon & Steve McCorriston, 2002. "Exchange Rate Uncertainty and Agricultural Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 84(4), pages 931-942.
  14. Vincent Vicard, 2009. "On trade creation and regional trade agreements: does depth matter?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 145(2), pages 167-187, July.
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