Agricultural Trade Liberalization: an International Trade Network Approach

Abstract

A number of attempts have been made to facilitate agricultural trade liberalisation over the last decades. In spite of these efforts, trade liberalisation of agricultural and food processed goods has been modest.

It is argued that this lack of trade liberalisation is explained by the existence of governments that are politically biased in the sense that they place anti-trade policies in order to favour powerful sectors in the economy.

While there exists some evidence supporting this argument, it is difficult to assess how these biases influence agricultural trade patterns because existing quantitative modelling approaches do not normally consider simultaneously key aspects that characterise the food industry such as intra-industry trade and the existence of intermediaries in the supply chain with significant market power, among others.

The objective of this thesis is to offer an alternative theoretical model that has the potential to accommodate these key aspects and corresponds to an international trade network model that extends the framework developed by Goyal and Joshi (2006).

The model was solved by means of simulations and the results revealed that policy biased indeed can prevent trade liberalisation of agricultural and food processed goods. However, other factors that apparently have not been reported so far and that are related to the market power exercised by intermediaries were identified. They correspond to the position of a country in the trade network (i.e. a country occupying a central position in the network is less likely to support trade liberalisation independently of any policy bias), the possibility that global free trade is an unlikely outcome, and the possibility that the world is trapped in an inefficient international trade network.

The results also revealed that the adoption of compensatory lump sum payments across countries (i.e. inter-node transfers) or across sectors within a country (i.e. intra-node transfers) could be used a potential tools to achieve global free trade in agriculture as they can compensate losers from trade by gainers achieving, as a consequence, Pareto improving outcomes.