Effects of Regional Trade Agreements on Trade in Agrifood Products: Evidence from Gravity Modeling Using Disaggregated Data

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2004-09-01
Authors
Jayasinghe, Sampath
Sarker, Rakhal
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Center for Agricultural and Rural Development

The Center for Agricultural and Rural Development (CARD) conducts innovative public policy and economic research on agricultural, environmental, and food issues. CARD uniquely combines academic excellence with engagement and anticipatory thinking to inform and benefit society.

CARD researchers develop and apply economic theory, quantitative methods, and interdisciplinary approaches to create relevant knowledge. Communication efforts target state and federal policymakers; the research community; agricultural, food, and environmental groups; individual decision-makers; and international audiences.

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The recent proliferation of regional trade agreements (RTAs) has intensified the debate on their merits. A growing literature has addressed this policy debate, focusing on the welfare and trade effects of RTAs and their likely impacts on the multilateral trading system. Some view them as stepping-stones toward multilateral trade liberalization while others see them as stumbling blocks against free trade. The existing literature has neglected some important aspects of RTAs dealing with trade in agrifood products. This study analyzes trade creation and diversion effects of the North American Free Trade Agreement (NAFTA) on trade of six selected agrifood products from 1985 to 2000. The investigation estimates an extended gravity model using pooled cross-sectional time-series regression and generalized least squares methods. The result shows that the share of intraregional trade is growing within NAFTA and that NAFTA has displaced trade with the rest of the world. NAFTA has served to boost trade significantly among its members rather than with the rest of the world. Countries participating in NAFTA have moved toward a lower degree of relative openness in agrifood trade with the rest of the world.

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