Trade openness and technical efficiency in Brazilian agriculture

Abstract

This study is conducted (1) to examine the possible link between increased trade openness and technical efficiency in Brazilian agriculture and (2) to contribute to the scholarly debate in the literature by measuring the impact of trade openness on technical efficiency. The analysis is conducted by using the Stochastic Frontier Analysis (SFA) method. Our results indicate large and significant impact of capital, and lesser but significant impact of labour on sectorial output, while expanding farmland would not increase the output. The estimates of trade openness are not statistically significant, indicating that it does not impact technical efficiency. Trade liberalization as an underlying motive for increasing technical efficiency does not exist based on our results. The primary markets for Brazilian agricultural commodities are still the domestic markets, which are still relatively well protected from foreign competition. This implies that domestic producers are not forced to use existing inputs more efficiently given the relative lack of competition domestically and enlarged foreign markets expanding primarily in the booming and large Asian economies.