Technology, ecology and agricultural trade

Abstract

I develop a general equilibrium framework for agricultural trade policy analysis that allows agro-ecological characteristics to influence patterns of specialization within the agricultural sector and trade costs to be product-specific. This induces substantial variation in market share elasticities with respect to a given exporter’s trade costs across its competitors, with the largest magnitude elasticities between countries most likely to compete head-to-head in the same products. The model is thus able to generate more nuanced predictions for how bilateral agricultural trade and production patterns shift in response to changes in policy than existing models. I provide a novel methodology to estimate the parameters of the distribution of productivity and trade costs that draws on techniques pioneered in the discrete choice literature. This approach has the considerable advantage of allowing me to parameterize and solve a product-level conceptual model while relying on very little data beyond widely available sector-level data used in a standard gravity model. This framework promises to allow researchers to make more informed predictions for how global agricultural trade and production patterns shift in response to policy change.