Preferential Trade Agreements and the Margins of Agricultural Trade Growth Shuwen Duan and Jason H. Grant, AAEC Seminar Feb. 22, 2013

Trade growth in dollar difference

Motivation Gap in the literature Krugman (1981): over-estimate the extensive margin Armington (1996): extensive margin not considered This study is focused on two research questions: How important are the extensive and intensive margins in agricultural trade growth? Do trade policies (i.e., Regional Trade Agreements (RTAs)) systematically influence the margins of trade?

Main Results Extensive margin account for 30% of agricultural trade growth on average. RTAs influence trade through different impact on the two margins.

Related literature and Contribution Helpman, Melitz and Rubinstein(2008) Selection bias and firm heterogeneity Silva and Tenreyro (2006) & Liu(2009) Pseudo-Poisson Maximum Likelihood Hummels and Klenow(2006) extensive and intensive margin index Baier, Bergstrand and Feng(2012) Found positive effect of Economic Integration Agreements on trade margins

Gravity estimation with margins Decomposing trade growth Disaggregate Trade flow data Decomposition along extensive and intensive margins PPML estimation with margin subgroups Hummels & Klenow margin index HK index gravity- like estimation

I. Descriptive decomposition Existing destinationNew destination Existing product Intensive marginExtensive margin New productExtensive margin CountryProduct Existing product, existing partner CHN-INDCoffee, tea, spices; 0058,2853,196,634 New product, new partner BRA-CHNMeat000112,401 New product, existing partner SGP-INDOilseed

II. Hummels and Klenow decomposition Importer j’s total import (1)i  j (3)m  j

Gravity estimation with margins Decomposing trade growth Disaggregate Trade flow data Decomposition along extensive and intensive margins PPML estimation with margin subgroup Hummels & Klenow margin index HK index gravity- like estimation

Empirical estimation 1.Traditional gravity equation with FE effects 2.PPML estimation for two margin subgroups 3.Gravity-like estimation for HK margin indices

Data Trade flow: SITC Rev. 2 data: , 101 countries 147 agricultural products for 20 industries 360,000 obs. GDP CEPII RTA From WTO 102 RTAs

Econometric results

Results(1): PPML with margin subgroups (1) pooled (2) Extensive margin group (3) Intensive margin group ln(gdp) imp *** (0.05) *** (0.06) *** (0.05) ln(gdp) exp *** (0.04) ** (0.06) *** (0.05) RTA *** (0.04) * (0.06) *** (0.05) year *** (0.00) *** (0.01) (0.00) N * p < 0.05, ** p < 0.01, *** p < Dependent variables are bilateral trade value in levels. Remoteness index is included to account for multilateral price resistance terms and are not reported here. Year is time trend variable. Country pair-Fixed Effects included but not reported.

Results(2): HK indices estimation (1)ln(trade)(2)ln (em)(3) ln( im) ln(gdp) imp *** (0.01) *** (0.01) (0.01) ln(gdp) exp *** (0.01) *** (0.01) *** (0.01) RTA *** (0.02) * (0.01) *** (0.02) year *** (0.00) *** (0.00) *** (0.00) N * p < 0.05, ** p < 0.01, *** p < Remoteness index is included to account for multilateral price resistance terms and are not reported here. Year is time trend id. Pair-FE included but not reported.

Conclusions and implication For , extensive margin growth is a significant part of agricultural trade growth. On average, RTAs have positive effect in increasing countries’ export product varieties. RTA membership is more effective in increasing the intensive margin of trade relative to extensive margin

Future work Robustness check using different & longer base periods Decompositions & estimations by industries Removing potential price (inflation) effects from intensive margin Duration of the extensive margin and, At what point does the extensive margin become the intensive margin?

Thank you! Questions?