Research Accomplishment Reports 2009

Economic Impacts of International Trade and Domestic Policies on Southern Agriculture

M.R. Reed
Department of Agricultural Economics

 

Non-Technical Summary

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.

2009 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.

Babool, Reed, Saghaian, and Subramaniam test the hypothesis that environmental stringency adversely affects the international competitiveness (net exports) in manufacturing sectors. An econometric model is constructed which includes factor endowments and environmental regulations to examine how strict environmental policies impact export competitiveness. A panel data set of ten OECD countries over seventeen years, 1987-2003, was constructed for the modeling effort. The study finds 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. A positive relationship between net exports and environmental regulations was found for paper products, wood products, and textile products. However, most manufacturing industries are harmed by increased environmental regulations.

Song, Marchant, and Reed conduct a competitive structure analysis of the Chinese soybean import market. A two-country partial equilibrium trade model is used to test U.S.-China market power in soybean trade. The empirical result supports the hypothesis that Chinese soybean importers have stronger market power relative to U.S. soybean exporters. Results of this competitive structure analysis imply that the U.S. and South America are seasonal complementary soybean suppliers for China. It seems that the increased availability of South American soybeans throughout the marketing year seems to have allowed more market power for the Chinese.

2009 Impact

The implications of Song et al. are that the US must follow policies that reduce Chinese market power in the world soybean market. The US, Argentina, and Brazil have a common interest in developing new and expanding existing markets for soybeans to help combat this market power of the Chinese. More market outlets for soybeans will bring new customers to compete with the Chinese for exported soybeans, reducing the reliance on Chinese imports and possibly shrinking Chinese marketing margins. Babool et al. 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.

2009 Publications

Babool, Ashfaqul and Michael Reed. The Impact of Environmental Policy on International Competitiveness in Manufacturing. Applied Economics 41 (2009): (www.informaworld.com/10.1080/00036840701858026)

Babool, Ashfaqul, Michael Reed, Sayed Saghaian, and Vijay Subramaniam, Food Safety Standards and Export Competitiveness in the Processed Food Industries of Asia-Pacific Countries. Journal of International Agricultural Trade and Economic Development. 5 (2009) No. 1: 1- 10.

Saghaian, Maynard, and Reed. The Importance of Context in Determining Consumer Response to Food Safety Events: The Case of Mad Cow Disease Discovery in Canada, Japan, and the United States. In Outsourcing, Teamwork, and Business Management. Edited by Karl Carettas. Management Science Theory and Applications Series, Nova Publishers. 2009.

Salim, Juma, Sayed Saghaian, and Michael Reed. Trade Effects of Phytosanitary Protocols on the U.S.-India Almond Trade. Journal of Food Distribution Research 40 (2009): 159-64.

Song, Baohui, Mary Marchant, and Michael Reed. Market Power and Competitive Analysis of China's Soybean Import Market. International Food and Agribusiness Management Review 12 Issue 1 (2009): 21-42.

Subramanian, Vijay, Sayed Saghaian, Leigh Maynard, and Michael Reed. Sectoral Growth Interdependencies and the Role of Agriculture in Poland and Romania. Journal of Food Distribution Research 40 (2009):165-73.

Tondel, Fabien. International Trade and Industrial Geography. Ph.D. 2009.