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Agricultural Trade Liberalization and Downstream Market Power: Some Extensions

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  • Hoque, Mainul Mohammad
  • Schroeter, John R.

Abstract

 Exports of agricultural commodities to developed countries play a significant role in the economies of many developing countries.  The elimination of import tariffs has the potential to benefit producers in the developing countries, but estimates of the effect of trade liberalization typically assume perfect competition.  Significant concentration in the food processing and retailing sectors of the U.S. and the EU undermine the plausibility of this assumption in the case of agricultural trade, however.  Sexton, Sheldon, McCorriston, and Wang (SSMW, 2007) developed a model of the effects of trade liberalization that accounts for the vertically-linked and concentrated characteristics of the developed countries’ food markets.  Their principal qualitative finding is that an analysis based on the assumption of competitive conduct will overstate the effects of trade liberalization if food processing and retailing firms exercise market power.  This result is sensitive to their choice of functional forms, however, as this paper demonstrates with an analysis in which SSMW’s linearity assumption is replaced by constant elasticity specifications for supply and demand.  We also extend the SSMW analysis by considering ad valorem tariffs, a case for which the results exhibit both qualitative and quantitative differences from those for the unit tariff case.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 31390.

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Date of creation: 26 Mar 2010
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Handle: RePEc:isu:genres:31390

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Keywords: oligopoly; oligopsony; trade liberalization; vertical market structure;

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  1. Richard J. Sexton & Ian Sheldon & Steve McCorriston & Humei Wang, 2007. "Agricultural trade liberalization and economic development: the role of downstream market power," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 253-270, 03.
  2. McMillan, Margaret & Rodrik, Dani & Welch, Karen Horn, 2002. "When Economic Reform Goes Wrong: Cashews in Mozambique," Working Paper Series rwp02-028, Harvard University, John F. Kennedy School of Government.
  3. Wilcox, Michael D. & Abbott, Philip C., 2004. "Market Power and Structural Adjustment: The Case of West African Cocoa Market Liberalization," 2004 Annual meeting, August 1-4, Denver, CO 20084, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Byeong-Il Ahn & Hyunok Lee, 2010. "An equilibrium displacement approach to oligopoly market analysis: an application to trade in the Korean infant formula market," Agricultural Economics, International Association of Agricultural Economists, vol. 41(2), pages 101-109, 03.
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