Quantifying the Effects of Food Standards on Trade: New Approach and Understandings

Abstract

This paper proposes three most important issues for correctly quantifying the effects of trade barriers. Firstly, trade barriers should be a relative concept rather than an absolute one. It is necessary to consider both importer's standard and the gap in standards between trade partners. Secondly, different from the popular concept “multilateral resistances” of exporters and importers by Anderson and van Wincoop (2001, 2003), this study instead emphases the role of “bilateral resistances”. Thirdly, it is necessary to take exporters’ supply capacity into consideration and choose the proper proxies. This study suggests productivity (yield/ha) and harvest area should be taken into the econometric model. The results showed that more stringent Aflatoxin standard generally PROMOTE groundnut trade in the long run but with substantially different impacts on individual exporters. The GAP in standards between trade partners did impact trade flows. The larger the GAP is, the less trade flows will take place, which showed equivalence in food standards did play important role in food trade. Small increase in importer's standards generate large deduction in trade flows for big groundnut exporters. It also found that Yields and Harvest Area play more important role than food safety standards in groundnut trade flows. It has great policy implication for policy-makers in developing countries. If their targeted destination is development market, it's necessary to raise their productivity and domestic food standards; if not, it's more profitable to export to countries with similar standards.