Research Accomplishment Reports 2011

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.

2011 Project Description

Najarzadeh et al. found that Iran has a comparative advantage in the production of saffron. The nominal rate of protection shows that there is an indirect tax on saffron production for 2007. The elasticity analyses show that a 10% increase in the world price of saffron and the exchange rate improves the domestic resource cost index of saffron by 0.067%. The value of the competitiveness index based on export prices is estimated to be 0.33, which shows that Iranian saffron farmers can compete in the world markets.

Expansion of saffron production is a reasonable way to reduce poverty in some areas of the country. 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 COMESA, 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.

2011 Impact

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.

The paper published by Lin and Reed has been presented internationally at the following universities: Institute Pertanian Bogor (Indonesia), University of Lampung (Indonesia), and King Saud University (Saudi Arabia). The discussions from these presentations have been very fruitful and might have significant ramifications for research in those countries.

2011 Publications

Najarzadeh, Reza, Michael Reed, Sayed Saghaian, Mohammad Aghaei, and Mohammad Rezagholizadeh. A Study of Irans Comparative Advantage in Saffron. Journal of International Agricultural Trade and Economic Development. Volume 7 (2011) Issue 1. https://www.novapublishers.com/catalog/product info.phpproducts id=2 6549