The border effect in agricultural markets between European Union, OECD and LDC countries

Abstract

This paper uses the border effect estimate from a g ravity model to assess the level of trade integration in agricultural markets between EU, OECD and LDC countries, over the 1995-2000 period. The empirical analysis confirms that using a gravity equation derived from theory, in th e estimation of the border effect, matters. A representative estimate of the b order effect shows that crossing a national border into the EU market induc es a trade-reduction effect by a factor of 13. The border effect increases str ongly on passing from trade between OECD countries to trade between LDCs. In the observed period the access to EU market appears quite stable for trade with other OECD countries, whereas it significantly decreases for trade with L DC countries. Finally, we show that the tariff equivalent implied by the esti mated border effects are not implausible when compared to the actual range of di rect protection measures.