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Preferential Trade Agreements and the Margins of Agricultural Trade Growth

Preferential Trade Agreements and the Margins of Agricultural Trade Growth. Shuwen Duan and Jason H. Grant, AAEC Seminar Feb. 22, 2013. Trade growth in dollar difference. Motivation . Gap in the literature Krugman (1981): over-estimate the extensive margin

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Preferential Trade Agreements and the Margins of Agricultural Trade Growth

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  1. Preferential Trade Agreements and the Margins of Agricultural Trade Growth Shuwen Duan and Jason H. Grant, AAEC Seminar Feb. 22, 2013

  2. Trade growth in dollar difference

  3. Motivation • Gap in the literature • Krugman (1981): over-estimate the extensive margin • Armington(1996): extensive margin not considered • This study is focused on two research questions: • How important are the extensive and intensive margins in agricultural trade growth? • Do trade policies (i.e., Regional Trade Agreements (RTAs)) systematically influence the margins of trade?

  4. Main Results • Extensive margin account for 30% of agricultural trade growth on average. • RTAs influence trade through different impact on the two margins.

  5. Related literature and Contribution • Helpman, Melitz and Rubinstein(2008) • Selection bias and firm heterogeneity • Silva and Tenreyro (2006) & Liu(2009) • Pseudo-Poisson Maximum Likelihood • Hummels and Klenow(2006) • extensive and intensive margin index • Baier, Bergstrand and Feng(2012) • Found positive effect of Economic Integration Agreements on trade margins

  6. I. Descriptive decomposition

  7. II. Hummels and Klenow decomposition =(2)/(3) =(1)/(2)

  8. Empirical estimation • Traditional gravity equation with FE effects • PPML estimation for two margin subgroups • Gravity-like estimation for HK margin indices

  9. Data • Trade flow: • SITC Rev. 2 data: 1976-2010, • 101 countries • 147 agricultural products for 20 industries • 360,000 obs. • GDP • CEPII • RTA • From WTO • 102 RTAs

  10. Econometric results

  11. Results(1): PPML with margin subgroups *p < 0.05, **p < 0.01, ***p < 0.001. Dependent variables are bilateral trade value in levels. Remoteness index is included to account for multilateral price resistance terms and are not reported here. Year is time trend variable. Countrypair-Fixed Effects included but not reported.

  12. Results(2): HK indices estimation *p < 0.05, **p < 0.01, ***p < 0.001 Remoteness index is included to account for multilateral price resistance terms and are not reported here. Year is time trend id. Pair-FE included but not reported.

  13. Conclusions and implication • For 1976-2010, extensive margin growth is a significant part of agricultural trade growth. • On average, RTAs have positive effect in increasing countries’ export product varieties. • RTA membership is more effective in increasing the intensive margin of trade relative to extensive margin

  14. Future work • Robustness check using different & longer base periods • Decompositions & estimations by industries • Removing potential price (inflation) effects from intensive margin • Duration of the extensive margin and, • At what point does the extensive margin become the intensive margin?

  15. Thank you! Questions?

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