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Imre Fertő GEWISOLA 2009 Agrar- und Ernährungsmärkte nach dem Boom

Integration of CEE agri-food sector into the EU: What does the trade theory and empirical evidence tell us?. Imre Fertő GEWISOLA 2009 Agrar- und Ernährungsmärkte nach dem Boom Kiel , September 30-October 2 , 2009. Outline. Motivation Theoretical considerations

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Imre Fertő GEWISOLA 2009 Agrar- und Ernährungsmärkte nach dem Boom

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  1. Integration of CEE agri-food sector into the EU: What does the trade theory andempirical evidence tell us? Imre Fertő GEWISOLA 2009 Agrar- und Ernährungsmärkte nach demBoom Kiel, September 30-October 2, 2009

  2. Outline • Motivation • Theoretical considerations • Overview on empirical evidences • Conclusions

  3. Motivation • Kym Anderson (1992) • The CEE countries and the Soviet Republics might become major agricultural exporters • The potential sources of agro-food trade growth in transition countries are less documented • Transition as a natural experiment • Potential explanations • Dynamics of comparative advantages • New trade theory

  4. The evolution of trade specialisation • Standard Heckscher-Ohlin model • the pattern of trade specialisation changes only if trading partners experience a change in their relative factor endowments • implication: the existence of persistent trade patterns • New Trade Theory • it depends on the nature of economies of scale • varied in nature and outcomes, but one of the main implications is that the pattern of trade tends to become more specialised • Proudman & Redding (2000): it is ultimately an empirical question

  5. Empirics on trade specialisation • Fertő (2008), PCE • 8 transition countries, 1992-2002 • Bojnec-Fertő (2008), CJAE • 12 NMS countries, 1999-2006 • Bojnec-Fertő (2009), FP • 8 CEBC countries, 1995-2007 • Main results • The extent of specialisation in Central European trade exhibits a mixed trend • Divergency/convergency increased over time • Trade spec. indices are stable for product groups with comparative disadvantage, but product groups with comparative advantage show significant variation

  6. Empirics on trade specialisation • Trade increased among countries after the NMS-12 countries joined to the EU • EU enlargement has a negative impact on agro-food relative trade advantages for all eight analyzed countries • Higher and more stable relative trade advantages are found for bulk primary raw agricultural commodities and less for consumer-ready foods, implying competitiveness shortcomings in food processing and in international food marketing

  7. New trade theory • Intra-industry trade • Quality trade • Trade variety • Duration of trade

  8. Intra-industry trade • Horizontal product differentiation • Different models of monopolistic competition developed based on preference structure: • General equilibrium model (CHO) developed by Helpman and Krugman (1985) • Vertical product differentiation: • Falvey (1981), Falvey and Kierzkowski (1987) and Flam and Helpman (1987) • Increasing importance of IIT in agri-food trade, but poorly documented in the NMS

  9. Intra-industry trade • Fertő (2005), JAE • Hungary, 1992-1998 • Bojnec et al. (2005), EAAE • Slovenia, 1996-2002 • Bojnec-Fertő (2008), IAMO Forum • SEE-7 countries, 1995-2003 • Main results • IIT tends to increase • Most of IIT is based on vertically differentiated products • The importance of the high and low quality vertical IIT vary between the SEE • Positive relationship between factor endowment and vertical IIT • More attention to the VIIT theory in empirical analysis

  10. Marginal IIT • IIT leads to lower costs of factor market adjustment, particularly for labour • Two sources: • Factor price rigidity • Factor specificity • Empirical manifestation • Unemployment • Factor price disparity

  11. MIIT empirics • Fertő (2009), JAE • Hungary, food industry, 1995-2003 • Some support to the SAH • Our results confirm that industry-specific variables may have a significant affect on employment changes and the associated adjustment costs

  12. Quality and price competition • Bojnec-Fertő (2009), ChER • CEFTA-5, 1995-2003 • 4 competition groups • Modest price and/or quality trade competition catching up development of the CEC-5 agro-food trade with the EU-15 markets • Natural and human factor endowments increase the share of successful price competition

  13. Quality and price competition • The importance of successful quality competition is also reduced by the level of economic development • Agricultural labor productivity improves trade surplus at low price and trade surplus at high price • R&D expenditures lead to agro-food trade surplus at high price

  14. Trade variety • Krugman (1979, 1980, 1981): two channels for the gains from trade arising from variety growth • reductions in trade costs • through the growth of the income in the foreign country • Policy implications (Romer, 1994) • trade liberalization increases the number of traded varieties as a source of welfare gains

  15. Trade variety in CEE countries • Bojnec-Fertő (2009), IAMO Forum • 12 CEE countries, 1995-2007 • Rauch (1999) product classification • Homogenous products • Referenced priced products • Differentiated products

  16. Empirics on trade variety • The impact of increased agro-food product variety on agro-food export growth is positive • The privatisation, transformation and restructuring process has positive effects on agro-food export and its variety growth • The price and trade liberalisations reduce agro-food export

  17. Duration of trade • One question is often not adressed when countries trade and how long do their trade relationships last • Besedeš and Prusa (2006) extend Rauch and Watson’s (2003) matching model • Two hypotheses: • differentiated products are traded longer than homogenous goods • for each product type the duration of trade increases with initial purchase size

  18. Empirics on agri-food trade • Bojnec-Fertő (2009) still in progress • CEEC17: NMS-12, NIS-5, 1999-2007, EU15/EU12 • duration of agro-food export differs in the NMS-12 and EU-15 markets • the length of agro-food export is longer in NMS-12 than in the EU-15 markets • quality requirements • tradition and border effects • differentiated products are exported for more extended periods than homogenous products • trade relationships starting with large initial exports are more likely to survive the observed five year period than those starting with small values • estimations are robust to both markets segments

  19. Conclusions? • Underdeveloped research area • Puzzling evidences without coherent picture • Forgotten topics: e.g. trade creation/diversion • We can learn a lot from the recent developments on theoretical and empirical trade literature to understand the transition in agriculture • What about plant-level new trade theory?

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