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Original Articles

Causes of world trade growth in agricultural and food products, 1951–2000: a demand function approach

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Pages 3503-3518 | Published online: 26 Mar 2009
 

Abstract

The objective of the present study is to analyse the causes of the growth of international agricultural and food trade in volume terms from 1951 to 2000. The results suggest that income growth has been the principal reason for this expansion, while exchange rate stability and the real price of agricultural products played only a minor role. Multilateral trade liberalization and trade costs, given their long-term stability, are not elements that could have stimulated their growth. Finally, the intensive liberalization of trade which took place in various economic regions, especially in Europe, became a key factor in promoting agricultural trade among the countries participating in regional trade agreements. The study results also indicate that the determinants of trade growth for these goods were different to those for other goods and other periods.

Acknowledgements

This study has received financial support from the Ministry of Education and Science of the Spanish Government, project SEJ 2005-077556. The final version has benefited from the comments of participants in the Sixth European Historical Economics Society Conference (Istanbul 2005) and in seminars held in the Universities of Zaragoza (Spain) and the Republic (Uruguay). The collaboration of María-Isabel Ayuda in the econometric analysis has been crucial. We also wish to thank Lorea Barrón, María Dolores Gadea, Domingo Gallego, Eva Pardos and Javier Silvestre for their comments.

Notes

1 There is an exception, namely Coyle et al. (Citation1998), which focuses on changes in agricultural trade composition between 1985 and 1995.

2 Taking an overall view of the period, the percentage of total international trade accounted for by agricultural goods declined sharply; their share was 41.5% in 1951 but had shrunk to just 7.6% at current values by 2000.

3 These figures are available in both paper format, FAO Trade Yearbooks (FAO, Citation1947–2000), and in electronic format, FAOSTAT database (FAOSTAT, Citation2004).

4 The principal advantage is that in the future we will be able to work with series disaggregated by product groups in volume, which we would have deflated with their own price indices.

5 Yates (Citation1960), Yu et al. (Citation2002) and Cranfield et al. (Citation2003) demonstrate the inelastic income demand of the majority of products that make up trade in agricultural products and foodstuffs, with this tending to increase as higher levels of development were achieved. For the period prior to the outbreak of the Second World War, see Pinilla and Ayuda (Citation2008).

6 For an estimation of the reduction of tariff protection, see Clemens and Williamson (Citation2004).

7 At the first round of GATT negotiations held in Geneva in 1947, pressure from the leading participants led to agriculture being excluded from the substantial reduction in tariffs and other barriers. Unfortunately, agricultural protection was largely ignored in successive GATT rounds (Annecy 1949, Turkey 1950–51, Geneva 1956, Dillon 1960–61, Kennedy 1964–67 and Tokyo 1974–79). Agricultural trade barriers only began to be seriously considered (and lowered) in the Uruguay Round (1986–94), as a result of political pressure from the United States and the Cairns Group, following conflicts over agricultural trade in the 1980s.

8 Lindert (Citation1991), Tyres and Anderson (Citation1992), Diaz-Bonilla and Reca (Citation2002) and Diaz-Bonilla and Tin (Citation2002).

9 Our indicator confirms the estimates of nominal protection, which reveal record levels for the period (see also, Tyres and Anderson, Citation1992; Derosa, Citation2004; Askoy, Citation2005), as well as increasing nontariff barriers in these years (see Laird and Yeats, Citation1988; World Bank, Citation1995).

10 Frankel (Citation1997) and Jayasinghe and Sarker (Citation2008).

11 According to Frankel (Citation1997), the EEC customs union was finalized in 1968. This model continued to be influential in the early 1990s, when the European Union expanded and NAFTA and 33 new RTAs were established (e.g. the North American Free Trade Agreement, NAFTA, the Common Market of the South, MERCOSUR, the Andean Pact, ASEAN) and began to liberalize trade among their members. See also Sharma and Chua (Citation1998).

12 During the last decades an extensive body of empirical studies have appeared which, using the gravity equation, have set out to analyse in the same way the effects of the proliferation of Regional Trade Agreements. See, for example, Frankel (Citation1997), Sharma and Chua (Citation1998), Endoh (Citation1999, Citation2005), Baier and Bergstrand (Citation2007) and, for the case of agricultural products, Cho et al. (Citation2002), Skripnitchenko et al. (Citation2006), Jayasinghe and Sarker (Citation2008) or Sarker and Jayasinghe (Citation2007).

13 See, for example, Brun et al. (Citation2005), Huang (Citation2007) or Duraton and Storper (Citation2008).

14 Hummels (Citation2001) has demonstrated a small reduction in transport times for the groups of products that make up agricultural trade, whilst the categories of manufactured products (especially those involving greater complexity in the manufacturing process) have clearly benefited from significant reductions in these transport times. Other authors, such as Coyle et al. (Citation2001), have shown only a limited impact of the reduction in transport costs for agricultural trade.

15 Dell’Ariccia (Citation1999) and Rose (Citation2000).

16 Cho et al. (Citation2002) prove that exchange rate volatility not only negatively affects trade in general, but also that its impact is more pronounced for homogeneous products, such as the majority of those in agricultural trade. See also a specific case in Onafowora and Owaye (Citation2008).

17 Such models, introduced by Engle (Citation1982) and Bollerslev (Citation1986), have been widely used in financial series.

18 This indicator of volatility (conditional standard deviation) is common in financial series and has been employed in international economics by McKenzei (Citation1999) for exchange rates.

19 The currencies of 16 countries were matched against the US dollar: Australia, Germany, Belgium, Canada, China/Hong Kong, Egypt, France, Greece, India, Italy, Japan, Portugal, Spain and the United Kingdom.

20 Rose (Citation2000) shows that common currencies, by reducing volatility among participants, positively affect total trade.

21 Note 1 in the Statistical Appendix explains how we have been able to construct the aggregate index of the real price evolution of agricultural products.

22 As given by Diakosavvas and Scandizzo (Citation1991) and Ocampo and Parra (Citation2003).

23 As Baier and Bergstrand (Citation2007) have shown for total trade.

24 This result is consistent with those reported in other works, such as Sarker and Jayasinghe (Citation2007), Serrano (Citation2007) and Serrano and Pinilla (Citation2007).

25 The difficulties in constructing a variable to measure the evolution of agricultural protection on an international scale plays down our results, since a shadow of doubt is cast upon their accuracy by the marked sensitivity of the nominal protection coefficient to variations in international prices.

26 Aparicio et al. (Citation2008).

27 Federico (Citation2005) demonstrates its strong growth by providing various estimations of the Total Factor Productivity of agriculture in developed countries.

28 Data for the period 1951 to 1961 are based on the FAO Trade Yearbooks using the Standard International Trade Classification (SITC Rev.) for that period. Data for the period 1961–2000 are taken from the FAOSTAT database, which utilizes the Standard International Trade Classification (SITC Rev. 2). Both classifications are based on the Brussels Customs Tariff Nomenclature (BCTN). The problems arising due to the differences in these classification systems have been resolved using the UN COMTRADE database (2003) created by the Statistical Division of the United Nations, which includes data from both trade classification systems for the period 1961 to 2000.

29 These countries accounted for approximately 80% of international trade in 1961 (82% of exports and 78% of imports).

30 In 1961 these products accounted for 82% of international agricultural trade and, despite their share declining at the end of the period, this was still 60% in 2000.

31 These products accounted for approximately 42% of international trade in 1961 (39% in 1990).

32 Producer prices in domestic markets are data from FAO production handbooks (for the period 1950 to 1973), and the FAOSTAT database (for the period 1990 to 2004). For the period 1974 to 1990, the series were provided directly by the FAO Statistical Office, since they are not published. Border prices were calculated using the database compiled from the FAO and FAOSTAT yearbooks, dividing the value of imports/exports by their quantities for each country in the sample.

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