Investigation of export-driving forces and trade potentials of the U.S. bourbon whisky industry

ABSTRACT

Bourbon whisky is one of the world’s most popular spirits and is a vital component of U.S. spirits exports. Yet, very limited research has examined the trade patterns of U.S. bourbon whisky. The purposes of this paper lie in (i) filling a void in the literature about the driving forces behind U.S. bourbon whisky exports, especially justifying the impact of geographical indications and trade disputes, and (ii) examining global and regional trade efficiency and trade potential of U.S. bourbon whisky, considering consumer preferences. This study adopts the stochastic frontier gravity model and trade inefficiency model to analyze bourbon trade patterns between the U.S. and its primary bourbon trade partners over 1990–2019. Results reveal that economic size, income level, trade facilitation, common language and the weighted share of adults who drink in the importing country are important factors in boosting bourbon trade flows. As expected, U.S. bourbon’s geographical indication is playing a significant role in boosting bourbon exports. Trade disputes between the U.S. and its trading partners are found to have significantly negative impacts on U.S. bourbon exports. Our research also reveals that U.S. bourbon whisky has great potential to reach markets throughout the world, particularly in Europe, North America and Oceania.

KEYWORDS:

• Bourbon whisky
• stochastic frontier gravity model
• geographical indication
• trade dispute
• trade potential

JEL CLASSIFICATION:

• Q13
• Q17

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Geographical indication (GI) and distinctive product recognition (DPR) are used interchangeably in this study.

² Weighted share of adults who drink is defined as the share of a country’s population in the world multiply by its share of adults who drink..

³ Given that the U.S. and the EU have a duty-free agreement on all distilled spirits, we include EU nations in the group that belongs to the same FTA with the United States..

⁴ Canada and Mexico imposed retaliatory tariffs on U.S. bourbon whisky from July 2018 to May 2019 and from June 2018 to May 2019, respectively.

⁵ The estimation of export substitution elasticity is limited to the period 2012–2019 due to data limitations..

⁶ U.S. domestic bourbon whisky prices are expressed in terms of ‘cost per 25.4 ounces/750 ml’.

⁷ The most recent auction refers to a period of time in which all auctions were concluded within a specific month.

⁸ In view of the fact that bourbon whisky is rarely selected into the index or represents a very small percentage of this index, we do not include the bourbon factor..

⁹ In light of limited data availability, we are unable to obtain spirits consumption data for each specific country, so we estimate spirits consumption using alcohol consumption levels for each country.

¹⁰ ‘Europe’ includes EU27+UK and Other Europe; ‘Asia’ includes East Asia, Southeast Asia, South Asia and West Asia; ‘America’ includes North America and South America. Regions in Africa are not listed here due to its small market share..

¹¹ Due to data limitation, we cannot calculate elasticity of export substitution for each country. Instead, we can only calculate Bourbon global average elasticity of export substitution.

¹² Estimation of trade potential is based on the stochastic frontier gravity model.

¹³ Adjusted trade potential is calculated based on the empirical results of the stochastic frontier gravity model, the trade inefficiency model, the elasticity of export substitution and the consumption intensity index as shown in Section 4.5.

¹⁴ Extensible trade potential is the difference between adjusted trade potential and average actual trade level.

Additional information

Funding

The work was supported by the Chinese Universities Scientific Fund [2022TC118]. Sayed Saghaian acknowledges the support from the United States Department of Agriculture, National Institute of Food and Agriculture, Hatch project No. KY004063, under accession number 7002927.