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Does Arbitraging Matter? Spatial Trade Models and Discriminatory Trade Policies

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  • Giovanni Anania
  • Alex F. McCalla

Abstract

When modeling discriminatory trade policies, such as targeted embargoes or targeted subsidies, failure to explicitly include assumptions about the possibility of simultaneous exporting and importing may yield misleading results. Nonlinear programming and "vector sandwich" models implicitly set rules regarding arbitraging which may be at variance with actual policies and/or country behavior. The paper introduces an alternative spatial model which allows the researcher to explicitly incorporate her own assumptions about arbitraging. An analysis of the 1980 U.S. embargo to the USSR shows how the proposed model performs relative to the most frequently used spatial trade models.

Suggested Citation

  • Giovanni Anania & Alex F. McCalla, 1991. "Does Arbitraging Matter? Spatial Trade Models and Discriminatory Trade Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(1), pages 103-117.
    • Handle: RePEc:oup:ajagec:v:73:y:1991:i:1:p:103-117.
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    File URL: http://hdl.handle.net/10.2307/1242887
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    Cited by:

    1. Pratt, James E. & Bishop, Phillip M. & Erba, Eric M. & Novakovic, Andrew M. & Stephenson, Mark W., 1997. "A Description of the Methods and Data Employed in the U.S. Dairy Sector Simulator, Version 97.3," Research Bulletins 122723, Cornell University, Department of Applied Economics and Management.
    2. Anania, Giovanni & Scoppola, Margherita, 2014. "Modeling trade policies under alternative market structures," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 185-206.
    3. Jones, James R. & Li, Shuang L. & Devadoss, Stephen & Jensen, Charlotte F., 1995. "The Former Soviet Union And The World Wheat Economy," A.E. Research Series 305140, University of Idaho, Department of Agricultural Economics and Rural Sociology.
    4. Bishop, Phillip M. & Pratt, James E. & Novakovic, Andrew M., 1993. "Analyzing the Impacts of the Proposed North American Free Trade Agreement on European-North American Dairy Trade Using a Joint-Input, Multi-Product Approach," Staff Papers 121341, Cornell University, Department of Applied Economics and Management.
    5. Bishop, Phillip M. & Pratt, James E. & Novakovic, Andrew M., 1994. "Using a Joint-Input, Multi-Product Formulation to Improve Spatial Price Equilibrium Models," Staff Papers 121317, Cornell University, Department of Applied Economics and Management.

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