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Agricultural market integration in the OECD: A gravity-border effect approach

Olper, A., Raimondi, V.
Food policy 2008 v.33 no.2 pp. 165-175
agribusiness, trade liberalization, agriculture, exports, imports, edge effects, tariffs, sanitary and phytosanitary regulations, agricultural policy, Europe
This paper uses the border effect estimate from a gravity model to assess the level of agricultural market trade integration among 22 OECD countries for the 1994-2003 period. Empirical analysis confirms that the use of a gravity equation derived from theory, in the estimation of border effect, matters. A representative estimate of the border effect shows that crossing a national border within the OECD induces an average trade-reduction effect of a factor 13. This average value masks differences that are quite substantial in market integration, with value for intra-EU trade being higher while that for trade between the Central and Eastern European Countries (CEECs) is lower. The data show a process of strong integration in all the country-trade combinations involving CEECs. However, quite surprisingly, the intra-CEEC and OECD-CEEC integration processes are almost twice as strong as those in the EU-CEEC combination. Finally, the equivalent tariffs implied by the estimated border effects are not implausible compared to the actual range of direct protection measures.