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Using the Logistic Functional Form for Modelling International Price Transmission in Net Trade Simulation Models

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  • Banse, Martin
  • Grethe, Harald

Abstract

Various reasons including cif/fob spread, differing political price protection depending on the net trade situation, and domestic transportation cost contribute to situations in which domestic prices are different in an exporting compared to an importing situation. Net trade models that take these differences into account must somehow deal with the problem of products that are not exported at the export-based price, because it is too low, and are not imported at the import-based price, because it is too high. In such a case, the equilibrium price lies somewhere between the export- and the import-based price. This paper presents the application of the Logistic functional form for depicting price transmission from international to domestic prices in the net trade model ESIM. On the basis of the EU beef market it is shown that the Logit functional form is a flexible tool for the formulation of price transmission in net trade models. A smooth transition can be depicted from an import to an export based price. Also the effects of TRQs and quantity restricted export subsidies can be included. Preliminary results of the application of this approach to the EU beef market show that each, the abolishment of ES as well as the doubling of preferential market access for beef, may result in a price decline on the EU market of 7-9% and the EU would become a net importer of beef under both options. Combined, the price decline may amount 15% and net exports may amount 15% of EU domestic use.

Suggested Citation

  • Banse, Martin & Grethe, Harald, 2006. "Using the Logistic Functional Form for Modelling International Price Transmission in Net Trade Simulation Models," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25344, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae06:25344
    DOI: 10.22004/ag.econ.25344
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    References listed on IDEAS

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    1. Hans van Meijl & Frank van Tongeren, 2002. "The Agenda 2000 CAP reform, world prices and GATT--WTO export constraints," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 29(4), pages 445-470, December.
    2. Beghin, John C. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Fuller, Frank H. & Hart, Chad E. & Kovarik, Karen P. & Tokgoz, Simla & Yu, Tun-Hsiang & Wailes, Eric J. & Chavez, Edward & Woma, 2006. "FAPRI 2006 U.S. And World Agricultural Outlook," Staff General Research Papers Archive 12597, Iowa State University, Department of Economics.
      • Beghin, John C. & Dong, Fengxia & Elobeid, Amani E. & Fabiosa, Jacinto F. & Fuller, Frank H. & Hart, Chad E. & Kovarik, Karen & Tokgoz, Simla & Yu, Tun-Hsiang (Edward) & Wailes, Eric J. & Chavez, Eddi, 2006. "FAPRI 2006 U.S. and World Agricultural Outlook," FAPRI Staff Reports 7319, Food and Agricultural Policy Research Institute (FAPRI).
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    2. Cassoni, Adriana & Flores, Manuel, 2008. "Methodological shortcomings in estimating Armington elasticities," MPRA Paper 34544, University Library of Munich, Germany, revised 2009.
    3. Isabelle Schluep Campo & Robert Jörin, 2009. "Liberalizing the Swiss Meat Market with the EU: Welfare Effects and Impacts on Third Countries," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(I), pages 107-126, March.

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