Trade efficiency under FTA for Thailand’s agricultural exports: copula-based gravity stochastic frontier model

Abstract

This study investigated the trade efficiency and trade effects under Free Trade Agreements for Thailand’s agricultural exports. There are five main trading partners comprising China, Japan, Australia, New Zealand, and India. The important agricultural commodities of rubber, cassava, fruits, vegetables, and herbs were assessed from 1998 to 2019. In a traditional stochastic frontier model the two error components of symmetric noise ({nu }_{j}) and a non-negative inefficiency ({u}_{j}) are assumed to be independent. This may result in invalid inferences due to misspecification. To address this obstacle, copula-based Gravity Stochastic Frontier Models (GSFM) using panel criteria were constructed to estimate trade efficiency. Empirically, the Student-t copula-based SFM minimizes both AIC and BIC. According to their mean TE, China (0.48) and Japan (0.48) had the highest export efficiencies followed by India (0.41), New Zealand (0.39), and Australia (0.33) in rank order. Hence, Thailand should pursue more FTA negotiations with the trading partners. Moreover, they should promote miscellaneous behind-the-border barriers to stimulate flows of goods to enhance the country’s trade efficiency substantially.