Domestic support and tariff reductions in the presence of non-tariff barriers: A gravity model for primary and processed agricultural products
Agricultural 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.
|Date of creation:||01 Apr 2006|
|Date of revision:||01 Dec 2006|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:att:wimass:9713 is not listed on IDEAS
- Marion Desquilbet & Hervé Guyomard, 1998. "Agricultural Export Subsidies and Intermediate Goods Trade: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 422-425.
- Feenstra, Robert C. & Rauch, James E., 1999. "Symposium on business and social networks in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 1-1, June.
- Debaere, Peter, 2005. "Monopolistic competition and trade, revisited: testing the model without testing for gravity," Journal of International Economics, Elsevier, vol. 66(1), pages 249-266, May.
- James E. Anderson & Eric van Wincoop, 2004.
Boston College Working Papers in Economics
593, Boston College Department of Economics.
- Dean A. DeRosa & John P. Gilbert, 2005. "Predicting Trade Expansion under FTAs and Multilateral Agreements," Working Paper Series WP05-13, Peterson Institute for International Economics.
- Simon J. Evenett & Wolfgang Keller, 2002.
"On Theories Explaining the Success of the Gravity Equation,"
Journal of Political Economy,
University of Chicago Press, vol. 110(2), pages 281-316, April.
- Simon J. Evenett & Wolfgang Keller, 1996. "On Theories Explaining the Success of the Gravity Equation," International Trade 9608001, EconWPA, revised 13 Jun 1997.
- Simon J. Evenett & Wolfgang Keller, 1998. "On Theories Explaining the Success of the Gravity Equation," NBER Working Papers 6529, National Bureau of Economic Research, Inc.
- Francois, Joseph & Martin, Will, 2003.
"Formula Approaches for Market Access Negotiations,"
CEPR Discussion Papers
3720, C.E.P.R. Discussion Papers.
- Fernando Alvarez & Robert E. Lucas, 2005.
"General Equilibrium Analysis of the Eaton-Kortum Model of International Trade,"
NBER Working Papers
11764, National Bureau of Economic Research, Inc.
- Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
- Touhami Abdelkhalek & Jean-Marie Dufour, 1998.
"Statistical Inference For Computable General Equilibrium Models, With Application To A Model Of The Moroccan Economy,"
The Review of Economics and Statistics,
MIT Press, vol. 80(4), pages 520-534, November.
- ABDELKHALEK, Touhami & DUFOUR, Jean-Marie, 1997. "Statistical Inference for Computable General Equilibrium Models with Application to a Model of the Moroccan Economy," Cahiers de recherche 9713, Universite de Montreal, Departement de sciences economiques.
- Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
- Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
- Geraci, Vincent J & Prewo, Wilfried, 1982. "An Empirical Demand and Supply Model of Multilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 432-41, August.
- Golub, Stephen S & Finger, J M, 1979. "The Processing of Primary Commodities: Effects of Developed-Country Tariff Escalation and Developing-Country Export Taxes," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 559-77, June.
- Keeney, Roman & Thomas Hertel, 2005. "GTAP-AGR : A Framework for Assessing the Implications of Multilateral Changes in Agricultural Policies," GTAP Technical Papers 1869, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2743. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.