Domestic support and tariff reductions in the presence of non-tariff barriers: A gravity model for primary and processed agricultural products
AbstractAgricultural trade liberalization negotiations are currently at a crossroads. Progress was made to eliminate export subsidies, but small open economies’ demand for lower domestic support and tariffs on agricultural goods do not find much support among large policy active countries. Many non-tariff barriers still also impede agricultural trade. This paper presents the theoretical foundations of a gravity model to explain trade flows of both primary agricultural commodities and processed foods. At the consumer level, commodities are differentiated according to their country of origin while primary agricultural goods are homogenous from the buyers’ perspective. However, primary goods can not be substituted costlessly across destinations from the sellers’ perspective due to differences in technical and sanitary regulations between countries. These assumptions yield well-behaved import demand functions at the consumer level and export supply functions at the producer level. Imperfect substitutability at the consumption and production levels is summarized in two important structural parameters. The role of these parameters in explaining bilateral trade patterns is illustrated for a three-country world market using a numerical example. The simulation investigates whether it is more important for a small open economy that large policy active countries reduce agricultural tariffs or domestic support. It also addresses the implications of tariff escalation on trade flows.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2743.
Date of creation: 01 Apr 2006
Date of revision: 01 Dec 2006
Agri-food trade liberalization; Gravity models; tariffs; domestic support; tariff escalation;
Find related papers by JEL classification:
- Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
This paper has been announced in the following NEP Reports:
- NEP-AGR-2007-04-21 (Agricultural Economics)
- NEP-ALL-2007-04-21 (All new papers)
- NEP-INT-2007-04-21 (International Trade)
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