Growing Olive Oil Export and Intra-Industry Trade in Mediterranean Countries: Application of Gravity Model

Kenichi Kashiwagi,Lamia Arfa,Lokman Zaibet,Erraach Yamna

doi:10.3390/su12177027

Kenichi Kashiwagi, Lamia Arfa + Show 2 more

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https://doi.org/10.3390/su12177027

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Abstract

While olive oil production is spreading to the non-traditional producer countries, including the US, Australia, and New Zealand, Mediterranean countries are still major producers and exporters. However, little is known about their olive oil exports simultaneously growing in tandem with their large volume of imports. This paper examines the factors that affect olive oil exports and imports in Mediterranean countries. Using balanced panel data of olive oil trade in Mediterranean countries from 1998 to 2016, we estimated the commodity-specific gravity model. Results suggest that an increase in the overall bilateral size of trading partners positively affects the flow of olive oil trade. The difference in factor endowments has a negative impact on exports, whereas its effect is positive on their imports. The members of the European Union (EU) are competitive in olive oil export, and the volume of its import is large among the EU countries whose per capita income and demand properties are similar. These results support Linder’s hypothesis rather than the predictions from the traditional Heckscher–Ohlin trade theory. The simultaneous export and import of olive oil in Mediterranean countries implies the relevance of a growing intra-industry trade rather than a country’s specialization following its comparative advantage.

Highlights

Over the last quarter-century, the size of the global olive oil market has been growing
Following the empirical studies of the gravity model by Egger [8], Baltagi et al [9], and Paas et al [10], we examine the variables that assess the validity of the new trade theory, assuming that bilateral trade is a function of the sum of two countries’ real gross domestic product (GDP); the similarity of two trading countries; and the difference in relative factor endowments between the two
The Breuch–Pagan test rejects the null hypothesis that pooled ordinary least squares model (POL) is more appropriate than the random-effects model (REM)

Summary

Introduction

Over the last quarter-century, the size of the global olive oil market has been growing. While the EU’s export of olive oil continues to grow, a large import volume has been observed. These Mediterranean countries produce a surplus of olive oil but face declining consumption. Despite this excessive supply of olive oil, these countries continue to import a large volume of olive oil from other countries. This phenomenon is typically observed in traditional olive oil producers such as Italy, Spain, and France

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