The sensitivity of trade flows to trade barriers

This study analyzes the sensitivity of trade flows to trade barriers from gravity equations, using different econometric techniques recently highlighted in the literature. Specifically, we compare a benchmark OLS fixed effects specification a la Feenstra (2002) with three emerging estimation methods: the standard Heckman correction for selection bias, to account for zero trade flows; the Eaton and Tamura (1994) Tobit estimator, to solve limited-dependent variable issues; and, finally, the Poisson pseudo-maximum-likelihood (PPML) technique, to correct for the presence of heteroskedasticity. Our gravity model includes trade among 193 exporter and 99 importer countries, in 18 food industry sectors. The paper achieves two goals: First it provides estimates of the elasticity of substitution obtained using the four estimation techniques; Second, it gives a dimension to the trade reduction effect induced by existing border protection, by simulating the effect of a full trade liberalization scenario on 18 food sectors. The estimates reveal interesting variations in the elasticity of substitution across products and procedures. The simulation indicates that trade liberalization will strongly increase food exports, especially from emerging and developing countries.Gravity model, Food Trade, Substitution elasticity, Trade liberalization, International Relations/Trade, F1, F13, F14,

Market Access Asymmetry in Food Trade among Quad Countries

This paper uses a gravity-like structure derived from a monopolistic competition model to measure market access among Canada, USA, Japan and EU Quad countries over the 1996-2001 period. We explore the overall asymmetry and 18 food industrial-level asymmetries of bilateral trade openness. Using actual bilateral estimates of tariffs and nontariff barriers, we investigate their role in explaining the trade reduction effect of national borders. A representative estimate of market access shows that higher asymmetries exist in USA, Canada and EU trade with Japan. Quite surprisingly, the last country is always more open than the reverse. Finally, we found that tariffs and NTBs explain a significant part of the border effects and that the NTB role is often higher than that of tariff.market access, food trade, asymmetry, gravity, QUAD countries, International Relations/Trade, F13, F14, Q17,

Elasticity of trade flow to trade barriers: A comparison among emerging estimation techniques

The objective of this study has been to analyze the sensitivity of trade flow to trade barriers from gravity equations, using different econometric techniques recently highlighted in the literature. Specifically, we compare a benchmark OLS fixed effects specification a la Feenstra (2002), with three emerging estimation methods: the standard Heckman correction for selection bias, to account for zero trade flow; its extension, recently proposed by Helpman et al. (2008), to control for firm heterogeneity; and, finally, the Poisson pseudo-maximum-likelihood (PPML) technique to correct for the presence of heteroskedasticity, first proposed by Santos Silva and Tenreyro (2006). Our gravity model includes trade among 211 exporter and 104 importer countries, in 18 food industry sectors.Gravity model, Trade Elasticity, Food trade, International Relations/Trade,

Explaining National Border Effects in the Quad Food Trade

Starting from a theoretically consistent gravity model, this paper first provides estimates of bilateral 'border effects' in food trade among Quad countries (Canada, USA, Japan and EU) at the ISIC 4-digit level. Then, it investigates the underlying reasons of border effect, assessing the role played by policy barriers (tariffs and non-tariff barriers) with respect to barriers unrelated to trade policy, such as information related costs and cultural proximity. In contrast with several previous findings, we show that policy barriers are part of the story in explaining the strong trade reduction effect induced by national borders, and this is especially true when we control for the endogeneity of trade policy to imports, as suggested by political economy arguments. Moreover, our results show that elements linked to cultural proximity and consumer preference for home goods, matter a great deal in explaining the magnitude of border effects. The trade reduction effect induced by these policy-unrelated components are from 1.5 to 3 times larger than that induced by policy barriers. These results have implications for the economic and welfare significance of national borders.border effect, food trade, market access, gravity, QUAD countries, International Relations/Trade, F13, F14, Q17,

The border effect in agricultural markets between European Union, OECD and LDC countries

border effect, gravity equation, agricultural trade, European Union, LDCs, Agricultural and Food Policy, International Relations/Trade, F13, F14, Q17,

Constitutional Rules and Agricultural Policy Outcomes

This paper deals with the effect of constitutional rules on agricultural policy outcomes in a panel of observations for more than 70 developing and developed countries in the 1955-2005 period. Testable hypotheses are drawn from recent developments in the comparative politics literature that see political institutions as key elements in shaping public policies. Using differences-in-differences regressions we find a positive effect of a transition into democracy on agricultural protection. However, this average effect masks substantial heterogeneities across different forms of democracy. Indeed, what matters are transitions to proportional (as opposed to majoritarian) democracies, as well as to permanent (as opposed to temporary) democracies. Moreover, while we do not detect significant differences across alternative forms of government (presidential versus parliamentary systems), there is some evidence that the effect of proportional election is exacerbated under parliamentary regimes, and diminished under presidential ones.Distorted incentives, agricultural and trade policy reforms, national agricultural development, Comparative Political Economics, Agricultural Distortions, Constitutional Rules, Agricultural and Food Policy, International Relations/Trade, F13, F14, Q17, Q18, D72, H23, O13, P16,

Preference erosion and the developing countries exports to the EU: a dynamic panel gravity approach

Since 2004 there has been a sharp decrease in border protection for the EU rice industry. Because the EU grants trade preferences to a considerable number of rice exporting developing countries, the reform implied preference erosion as well. By addressing the impact of preference erosion on developing countries rice exports to the EU, this paper contributes two original insights to the literature: first, by proposing a new empirical approach to compute the preference margin when tariff rate quotas are in force which is based on the assumption of the existence of fixed costs and economies of scale in international trade; second, by estimating the trade elasticities of preferences by means of a dynamic panel gravity equation to deal with the issues of endogeneity of preferences and persistency in bilateral trade flows. The results show that the way preference margins are calculated matters significantly when assessing the existence and extent of their erosion and the values of trade elasticities. Finally, the estimations highlight the fact that the impact of preferences is still very strong for some of the countries concerned.Trade Preferences, Gravity Equation, Tariff Rate Quotas, EU Rice Policy, GMM, Agricultural and Food Policy, International Relations/Trade, F13, Q17, F14,

Does Common Agricultural Policy Reduce Farm Labour Migration? A Panel Data Analysis Across EU Regions

This paper deals with the determinants of labour out-migration from agriculture across 153 EU regions over the 1990-2008 period. The central aim is to shed light on the role played by CAP payments on this important adjustment process. Using static and dynamic panel data methods, we show that standard neo-classic drivers, like the relative income and the relative labour share, represented significant determinants of the inter-sectoral migration of the agricultural labour. Overall, CAP payments have contributed significantly to job creation in agriculture, although the magnitude of the economic effect is quite small. Moreover, Pillar I subsidies have exerted an effect from three to five times stronger than Pillar II payments.Out-farm Migration, CAP Payments, Labour Markets, Panel Data Analysis, Agricultural and Food Policy, Labor and Human Capital, Q12, Q18, O13, J21, J43, J60,

Foreign land acquisitions and environmental regulations: Does the pollution-haven effect hold?

The recent wave of foreign land acquisitions (FLA) has raised several concerns in terms of their environmental and social sustainability. An unexplored issue is whether pollution-haven mechanisms are driving the pattern of FLA. This paper investigates whether and how differences in environmental stringency between investing and target country affect the pattern of FLA. We estimate a panel gravity equation and use different indexes to measure the environmental stringency. Our results show that, by and large, differences in environmental stringency do affect FLA. The wider the gap in the environmental stringency between the investor and the target country, the higher is the number of firms investing abroad. Our results also show that the impact of environmental stringency differentials on FLA depends on the investor country and on corruption in the target country, and that in a number of estimations the choice over the index of stringency may be a relevant factor

Off-farm Labour Decision of Italian Farm Operators. Factor Markets Working Document No. 61, August 2013

This paper analyses the factors affecting off-farm labour decisions of Italian farm operators. Using micro-level data from the Farm Business Survey (REA) over the pre- and post-2003 CAP reform periods, we investigated the impact that operator, family, farm and market characteristics exert on these choices. Among other things, the paper focuses also on the differential impact of those variables for operators of smaller and larger holdings. The main results suggest that operator and family characteristics have a significant impact on the decision to participate in off-farm work more for smaller than for bigger farms. By contrast, farm characteristics are more relevant variables for bigger farms. In particular, decoupled farm payments, by increasing the marginal productivity of farm labour, lower the probability of working off the farm only in bigger farms, while coupled subsidies in pre-reform years do not have a significant impact on labour decisions. Finally, we show that, after accounting for the standard covariates, local and territorial labour market characteristics generally have a low effect on off-farm work operators’ choices