Long‐run impacts of trade shocks and export competitiveness: Evidence from the U.S. BSE event

Chen‐Ti Chen,William Hahn,Fawzi Taha,Lee L Schulz,John M Crespi

doi:10.1111/agec.12602

Abstract

AbstractThis paper examines how comparative advantages of major beef exporters changed following the 2003 bovine spongiform encephalopathy (BSE) outbreak, which significantly disrupted the U.S. beef trade until approximately 2007. Using longitudinal data on beef export values and constructed revealed comparative advantage measures, we show that while some measures of the long‐run impacts of BSE on U.S. beef export competitiveness have returned to pre‐2003 levels, the U.S.’s comparative advantage has not. We also examine a hypothetical scenario of no BSE event in 2003 and predict that in the absence of the BSE outbreak, the U.S. beef sector would have been increasingly more competitive by 2017 than it actually was. Long‐term trade competitiveness may not simply return to normal even after a short‐term disruption.

Highlights

Shocks from trade disputes and phytosanitary emergencies occasionally impact agricultural export markets
We show that while the U.S beef export values has mostly recovered back to their pre-bovine spongiform encephalopathy outbreak (BSE) levels, the U.S.’s comparative advantage has yet to return to where it was prior to the BSE outbreak
The regression model fits the variation of our normalized revealed comparative advantage (NRCA) indices well based on the R-square values for the top five exporting countries, suggesting the variation is mostly explained by the trend variables that capture other unobserved underlying changes in factors contributing to comparative advantage14

Summary

Introduction

Shocks from trade disputes and phytosanitary emergencies occasionally impact agricultural export markets. Other studies have examined the effects of food scares from BSE outbreaks on cattle futures prices and beef sales adjustments finding evidence of significant structural breaks of futures prices and adverse effects on beef sales following BSE events (Jin et al 2008; Marsh et al 2008; Schlenker and Villas-Boas 2009; Taha and Hahn 2014). We add to this literature by providing evidence of the impact of an outbreak of BSE on a country’s international competitiveness.

Background

Empirical Analyses

Estimation Results

Conclusions