Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1227: Measuring the Impact of Agricultural Production Shocks on International Trade Flows

Shon Ferguson () and Johan Gars ()
Additional contact information
Shon Ferguson: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Johan Gars: GEDB, Postal: Royal Swedish Academy of Sciences

Abstract: The purpose of this study is to measure the sensitivity of traded quantities and trade unit values to agricultural production shocks. We develop a general equilibrium model of trade in which production shocks in exporting countries affect both traded quantities and trade unit values. The model includes per-unit trade costs and develops a methodology to quantify their size exploiting the trade unit value data. Using bilateral trade flow data for a large sample of countries and agricultural commodities we find that the intensive margin of trade is relatively inelastic to production shocks, with a 1 percent increase in production leading to a 0.5 percent increase in exports. We also find that per-unit trade costs are large, comprising 15 to 20 percent of import unit values on average. Overall, our results suggest that there is room for improving trade as a mechanism for coping with food production volatility.

Keywords: Food production volatility; Trade costs; Agricultural trade; Gravity model

JEL-codes: F14; F18; Q11; Q17; Q18

46 pages, August 28, 2018

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