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Trade Creation and Diversion under NAFTA: The North American Strawberry Market

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  • Lee, Youngjae
  • Kennedy, Lynn

Abstract

In order to identify the effect on trade creation and diversion of NAFTA in the North American strawberry market, this study conducts a partial equilibrium analysis by using the CES utility and production functions of Dixit and Stiglitz which provide necessary equations to estimate unobservable final prices of imported strawberries and non-tariff trade costs. Based on the results of this study, we could confirm that 1) the effect on trade creation of NAFTA is greater than the effect on trade diversion, which leads to positive effect of NAFTA on the North American strawberry market, 2) the difference between the local price and the imported price might be due to high non-tariff trade costs that exist between borders, 3) market integration simulation shows trade creation of 453% and no trade diversion, and 4) market segregation simulation shows that trade volume in the regional market decreases by 26% and trade volume out of regional market increases by 1045%.

Suggested Citation

  • Lee, Youngjae & Kennedy, Lynn, 2016. "Trade Creation and Diversion under NAFTA: The North American Strawberry Market," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235428, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:235428
    DOI: 10.22004/ag.econ.235428
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    File URL: https://ageconsearch.umn.edu/record/235428/files/Strawberry.pdf
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    References listed on IDEAS

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    1. Bryan Melton & Wallace Huffman, 1993. "Implications of the North American Free Trade Agreement for Long-term Adjustment in U.S.-Mexican Beef Production and Trade," Food and Agricultural Policy Research Institute (FAPRI) Publications (archive only) 93-wp118, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. Barichello, Richard R. & Bivings, Leigh & Carter, Colin A. & Josling, Timothy E. & Lindsey, Patricia J. & McCalla, Alex F., 1991. "The Implications Of A North American Free Trade Area For Agriculture," Commissioned Papers 14619, International Agricultural Trade Research Consortium.
    5. Grennes, Thomas J. & Estrada, Julio Hernandez & Krissoff, Barry & Matus Gardea, Jaime Arturo & Sharples, Jerry A. & Valdes, Constanza, 1991. "An Analysis Of A United States-Canada-Mexico Free Trade Agreement," Commissioned Papers 14616, International Agricultural Trade Research Consortium.
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    Cited by:

    1. Kuan-Ming Huang & Zhengfei Guan & AbdelMalek Hammami, 2022. "The U.S. Fresh Fruit and Vegetable Industry: An Overview of Production and Trade," Agriculture, MDPI, vol. 12(10), pages 1-20, October.
    2. Suh, Dong Hee & Guan, Zhengfei & Khachatryan, Hayk, 2017. "The impact of Mexican competition on the U.S. strawberry industry," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 20(4), April.

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    Keywords

    Agricultural and Food Policy; Demand and Price Analysis; International Relations/Trade;
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