Measuring the Impact of Agricultural Production Shocks on International Trade Flows

47 Pages Posted: 10 Sep 2018

See all articles by Shon M. Ferguson

Shon M. Ferguson

Swedish University of Agricultural Sciences (SLU) - Department of Economics

Johan Gars

The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics

Date Written: August 29, 2018

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 Classification: F14, F18, Q11, Q17, Q18

Suggested Citation

Ferguson, Shon M. and Gars, Johan, Measuring the Impact of Agricultural Production Shocks on International Trade Flows (August 29, 2018). IFN Working Paper No. 1227, Available at SSRN: https://ssrn.com/abstract=3240430

Shon M. Ferguson (Contact Author)

Swedish University of Agricultural Sciences (SLU) - Department of Economics

Box 7013
Ulls hus, Ulls väg 27
Uppsala, 750 07
Sweden

Johan Gars

The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics ( email )

The Royal Swedish Academy of Sciences
P.O. Box 50005
S-104 05 Stockholm, SE-104 05
United States

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