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Economic Impacts of International Trade and Domestic Policies on Southern Agriculture
Department of Agricultural Economics
This project examines the factors that are influencing exports of Southern agriculture and how those factors might change in the future. The effects of potential trade liberalization through the World Trade Organization and through bi-lateral or multi-lateral free trade areas involving the US are also analyzed. The effects of economic growth and exchange rate changes are also analyzed so that potential future macroeconomic changes are incorporated into the project.
2010 Project Description
Developing country producers face several constraints related to food safety standards imposed by developed countries. Babool and Reed identify factors affecting export flows with respect to food safety standards and measures the effects of food safety standards on exports. The investigation uses data for processed food exports from 15 countries over 17 years.
The empirical results show that a one percent increase in food safety standards decreases exports by approximately one-half percent. Yet economic development in exporting countries can overcome higher food safety standards and will have a dominant effect over time as GDP increases for exporting countries. Lin and Reed found that the ASEAN-China PTA, EU-15, EU-25, and Southern African Development Community (SADC) agreements have generated large increases in agricultural trade among their members. There was significant export and import diversion from the EU-15, but the creation of SADC increased agricultural exports to third-party countries. There is only export diversion for NAFTA; no trade creation is attributed to this agreement. The other variables, such as GDP and fixed effects, are obviously capturing the dynamic trade among NAFTA partners.
Lin and Reed found many instances when the FTA had export creation effects early (for Common Market for East and Southern Africa, EU-15, and NAFTA), but in most instances those effects disappear in later years. A new FTA might encourage firms to ramp up their exporting platform and reach out to third party countries early, but then as the FTA transition continues, member countries become better markets and the export creation turns to export diversion. They also find only limited evidence that FTAs have led to multilateral lowering of trade barriers for agricultural products. There is evidence that SADC has imported more from third-party countries, but this is the only finding of export creation in this analysis. This import diversion is likely due to continued high agricultural tariffs for many non-FTA members.
Babool and Reed find that environmental regulations can be a way to combat the flight of manufacturing out of developed countries if the output from these industries can be identified as environmentally-friendly. This regulatory effect is found to be important for products where consumers consider environmental degradation in their purchasing decisions - wood products, textiles, and paper.
Lin and Reed find only limited evidence that free trade agreements (FTAs) have led to multilateral lowering of trade barriers for agricultural products. There is evidence that the Southern African Development Community has imported more from third-party countries, but this is the only finding of export creation in this analysis. The dynamic results discover more import diversion among free trade agreements than the static results. This import diversion is likely due to continued high agricultural tariffs for many non-FTA members. Thus, there is still much work to be done in the World Trade Organization to lower tariffs on agricultural products if the world is to reap the benefits from global free trade.
Babool, Ashfaqul and Michael Reed. The Impact of Environmental Policy on International Competitiveness in Manufacturing. Applied Economics 42 (2010): 2317-26.
Iswariyardi, Arief. Multi-Stage Game Analyses: An Application to the Oligopolistic Japanese Beef Market. Ph.D. dissertation, 2010.
Subramaniam, Vijay. Agricultural Inter-Sectoral Linkages and Its Contribution to Economic Growth in the Transition Countries. Ph.D. dissertation, 2010.
Sun, Lin and Michael Reed. Impacts of Free Trade Agreements on Agricultural Trade Creation and Trade Diversion. American Journal of Agriculutral Economics (2010) doi: 10.1093/ajae/aaq076. First published online: October 14, 2010.
Zhang, Qiang, Michael Reed, and Sayed Saghaian. The Impact of Multiple Volatilities on Import Demand for U.S. Commodities: The Case of Soybeans. Agribusiness: An International Journal 26 (2010): 202-19.