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The role of global agricultural market integration in multiregional economic modeling: using hindcast experiments to validate an Armington model

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  • Zhao, Xin
  • Calvin, Katherine
  • Wise, Marshall
  • Iyer, Gokul

Abstract

The representations of international trade and global market integration play central roles in long-term global agricultural economic modeling. However, the conventional use of the gravity models (i.e., the Armington approach) of trade may not adequately account for the dynamic process of market integration. In this paper, we generalize a logit-based Armington approach by permitting home preference bias erosion to account for a trend of global market integration. We build a simple agricultural economic equilibrium model and conduct hindcast experiments to examine the historical trend of market integration. The results show a significant integrating trend of the global agricultural market implied by converging Armington preference distributions (i.e., home bias erosion) in 1995 – 2015, with a half-life of 45 years. We demonstrate important implications of allowing the dynamic trend of market integration implied by bias erosion on estimating trade elasticities. By testing the future market integration trend implied by historical home bias integration in GCAM, we show a high sensitivity of long-term agroeconomic projections to future trade and market integration scenarios.

Suggested Citation

  • Zhao, Xin & Calvin, Katherine & Wise, Marshall & Iyer, Gokul, 2021. "The role of global agricultural market integration in multiregional economic modeling: using hindcast experiments to validate an Armington model," Conference papers 333309, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333309
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