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GTAP Resource #1513

"Intra-industry Trade, Multilateral Trade Liberalization and Invasive Species Risk"
by Tu, Anh T. and John Beghin

Abstract: We analyze the linkage between trade policy and invasive species (IS) hazard in the context of two-way trade and multilateral trade liberalization. Both intra-industry trade and multilateral trade liberalization are actual features of agricultural trade patterns and policies in the real world. We revisit the reciprocal-dumping model with differentiated products, adding trade and agricultural policies into the framework in the presence of invasive-species risk associated with agriculture. We look at multilateral trade liberalization, with countries jointly reducing their agricultural tariffs. This type of multilateral trade integration is much more likely to increase the damage from IS than predicted by unilateral trade liberalization under the HOS framework. We document the non-monotonic relationship between policy reforms including trade liberalization and farm policy and the damages from exotic species introductions.
Relevance and Motivations: The links between international trade and the environment, are multiple, complex and have been a topic of continuing heated debate. International trade can be an important driver of environmental change. Recent literature has been focusing on accidental introductions of exotic or invasive species (IS) like pests, weeds, and viruses, by way of international transport of commodities, which is an important aspect of this complex nexus (Perrings, Williamson and Dalmazzone; Mumford). The trade and environment interface is almost inherent to the economics of IS since trade is a major vector of propagation of these species, although it is not the only one. “Natural” invasions occur because of natural vectors (weather related ones, animal migration). The current economic literature is mostly focused on the “right” criteria to use or the optimal environmental policy response to the hazard of IS (Sumner; Binder). A related debate evolves around quarantine as a legitimate policy response to phyto-sanitary risk (Cook and Frazer; Anderson et al.)
Agricultural imports have always been an important conduit for biological invasions. The agricultural tariff structure, because of its strong influence on trade flows, is therefore an important issue to understand the hazards of IS introductions. In a standard one-way trade Hechsher-Ohlin-Samuelson (HOS) model, Costello and McAusland show that lowering agricultural tariffs could lower the damage from exotic species, even though the volume of trade rises, because an increase in imports results in a reduced domestic agricultural output, and thus the quantity of crops susceptible and available for damage and the amount of land that is disturbed and thereby aiding the propagation of exotic species.

What we do: The objective of our paper is to expand and build upon the analysis of Costello and McAusland which was based on the HOS model and unilateral trade liberalization. We study the linkage between trade distortions and damages associated with IS risk in the context of two-way trade. We believe that two-way trade or intra-industry trade characterizes agricultural trade patterns in the real world, and that the one-way trade framework has a limited empirical relevance in this context (e.g., two-way trade in grains, or more specifically in wheat). We also depart with the previous analysis by considering multilateral trade liberalization. Trade integration has been occurring mostly in the context of WTO multilateral or multilateral reforms (e.g., The Uruguay Round Agreement on Agriculture, Free Trade of the Americas). Seldom do countries engage in unilateral trade liberalization but rather commit to jointly reduce their protection through regional or multilateral agreements. Another argument to consider joint reforms is that transaction costs have been falling in most countries for both exports and imports through cheaper transportation, cheaper refrigeration and insurance and the joint tariff reforms also mimic the lower transaction costs on both sides of any border.
Approach and Methodology: We revisit the reciprocal dumping model with differentiated products by adding the trade and agricultural policies into the framework. We also consider joint tariff reductions and their effect on expected IS damage. We characterize damages from IS as in Costello and McAusland. We find that this type of trade integration is much more likely to increase expected damage from exotic species especially in a two-way trade model as compared to unilateral liberalization in a one-way trade context.
We also consider domestic farm subsidies. OECD agriculture is characterized by generous agricultural subsidies which have to a large extent, substituted for the lower border protection (OECD 2003). We consider this second best dimension of domestic subsidies in integrated markets and their role on IS risk. Increasing farm subsidies exacerbate IS risk as expected by maintaining large agricultural land bases.
Finally we document the non-monotonic relationship between trade reforms including trade liberalization and production subsidy adjustment and the damages from exotic species introductions.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Version: first draft
Created: Beghin, J. (5/1/2004)
Updated: Bacou, M. (9/11/2004)
Visits: 2,106
No keywords have been specified.

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