Determinants of World Demand for U.S. Corn Seeds: The Role of Trade Costs

The United States is a large net exporter of corn seeds. Seed trade, including corn, has been expanding but its determinants are not well understood. This paper econometrically investigates the determinants of world demand for U.S. corn seeds with a detailed analysis of trade costs impeding exports flows to various markets. Trade costs include costs associated with distance, tariffs, and sanitary-phytosanitary (SPS) regulations imposed by foreign countries on U.S. corn seed exports. SPS policy information comes from the Excerpt data base of USDA-APHIS. The analysis relies on a gravity-like model based on an explicit specification of derived demand for seed by foreign corn producers. A SPS count variable is incorporated as a shifter in the unit cost of seeds faced by foreign users. We use data from 48 countries and for the years 1989 to 2004. We find that all trade costs matter and have had a negative impact on U.S. corn seed exports. Tariffs matter most; followed by SPS measures and distance. An extensive econometric investigation reveals that qualitative results are robust to specification changes, but that sample selection bias is present in log-linear specifications based on seed export levels and approximating zero trade data with a small positive number.