IDEAS home Printed from https://ideas.repec.org/p/ags/pugtwp/330206.html
   My bibliography  Save this paper

Agri-food trade in GTAP-HET: Returns to scale in agriculture, and the Melitz model

Author

Listed:
  • Bourne, Mike
  • Gray, Clare
  • Cooke, Edgar
  • Humphreys, Lee

Abstract

Agricultural protection is almost always a highly sensitive issue in bi- and multi-lateral trade negotiations. The reasons for this are usually political, but it always means there is a high demand among policy makers for analytical tools which can assess the often complex impacts of liberalisation on farm viability, land use change, and consumer food prices. Since their inception, Computable General Equilibrium (CGE) models have made a rich contribution to this analysis. However, when standard assumptions of constant returns to scale and perfect competition are used, this can limit the ability of such models to answer the questions being asked by policy makers. Put simply, these questions often amount to “what are the opportunities, and what are the threats?” If returns to scale are not constant, or if other sources of productivity variation are present in a domestic farming system, the same liberalising policy may represent an opportunity to one farmer, and a threat to another, even if the two are producing the same commodity in the same country. Combining the macroeconomic width and rigour of a CGE model with the heterogeneity of domestic farm systems represents an exciting frontier in agri-food trade policy analysis. This paper will present the current evidence on returns to scale in agricultural sectors in selected countries – drawing on fixed and variable cost share data from the USDA, and European national Farm Business Surveys collated in the Farm Accountancy Data Network (FADN). Where the evidence for increasing returns to scale is clear, it follows that there is a clear case for the importance of making use of the Melitz model, or some alternative to the standard constant returns to scale assumption.

Suggested Citation

  • Bourne, Mike & Gray, Clare & Cooke, Edgar & Humphreys, Lee, 2020. "Agri-food trade in GTAP-HET: Returns to scale in agriculture, and the Melitz model," Conference papers 330206, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
  • Handle: RePEc:ags:pugtwp:330206
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/330206/files/10376_Bourne.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zeynep Akgul & Nelson B Villoria & Thomas W Hertel, 2016. "GTAP-HET: Introducing Firm Heterogeneity into the GTAP Model," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 111-180, June.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    4. Eddy Bekkers & Joseph Francois, 2018. "A Parsimonious Approach to Incorporate Firm Heterogeneity in CGE-Models," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 3(2), pages 1-68, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kox, Henk L.M., 2022. "A micro-macro model of foreign direct investment: knowledge-based gravity forces, self-selection and third-country effects," MPRA Paper 115542, University Library of Munich, Germany.
    2. Yi, Chae-Deug, 2020. "The computable general equilibrium analysis of the reduction in tariffs and non-tariff measures within the Korea-Japan-European Union free trade agreement," Japan and the World Economy, Elsevier, vol. 56(C).
    3. Nilsson, Lars, 2019. "Reflections on the economic modelling of free trade agreements," DG TRADE Chief Economist Notes 2019-2, Directorate General for Trade, European Commission.
    4. Botero García, Jesús Alonso & Hurtado, Alvaro & Montañez Herrera, Diego Fernando, 2021. "The productivity of the agricultural sector and its effects on economic growth: a CGE analysis," Conference papers 333318, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Peter Dixon & Michael Jerie & Maureen Rimmer, 2019. "Melitz in GTAP Made Easy: the A2M Conversion Method and Result Interpretation," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 4(1), pages 97-127, June.
    6. Ana Sanjuan Lopez & Marie-Luise Rau & Geert Woltjer, 2019. "Exploring alternative approaches to estimate the impact of non-tariff measures and further implementation in simulation models," JRC Research Reports JRC113883, Joint Research Centre.
    7. Peter Dixon & Michael Jerie & Maureen Rimmer, 2016. "Modern Trade Theory for CGE Modelling: The Armington, Krugman and Melitz Models," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 1-110, June.
    8. Niemi, Janne, 2019. "Trade, persistent habits and development - a dynamic CGE model analysis," Conference papers 333084, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Oliveira, Paulo Felipe & Cordeiro, Pedro Antero, 2023. "Trade policy analysis in Brazil: Assessing welfare impacts with revised Armington elasticities," Economic Modelling, Elsevier, vol. 129(C).
    10. Jafari, Yaghoob & Britz, Wolfgang, 2018. "Modelling heterogeneous firms and non-tariff measures in free trade agreements using Computable General Equilibrium," Economic Modelling, Elsevier, vol. 73(C), pages 279-294.
    11. Balistreri, Edward J. & Tarr, David G., 2020. "Comparison of deep integration in the Melitz, Krugman and Armington models: The case of The Philippines in RCEP," Economic Modelling, Elsevier, vol. 85(C), pages 255-271.
    12. Leibovici, Fernando & Waugh, Michael E., 2019. "International trade and intertemporal substitution," Journal of International Economics, Elsevier, vol. 117(C), pages 158-174.
    13. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    14. Anne‐Célia Disdier & Carl Gaigné & Cristina Herghelegiu, 2023. "Do standards improve the quality of traded products?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(4), pages 1238-1290, November.
    15. Gordeev, Roman, 2020. "Comparative advantages of Russian forest products on the global market," Forest Policy and Economics, Elsevier, vol. 119(C).
    16. Marc J. Melitz & Stephen J. Redding, 2015. "New Trade Models, New Welfare Implications," American Economic Review, American Economic Association, vol. 105(3), pages 1105-1146, March.
    17. Tovar, Jorge, 2012. "Consumers’ Welfare and Trade Liberalization: Evidence from the Car Industry in Colombia," World Development, Elsevier, vol. 40(4), pages 808-820.
    18. Miaojie Yu & Jin Li, 2014. "Imported Intermediate Inputs, Firm Productivity and Product Complexity," The Japanese Economic Review, Japanese Economic Association, vol. 65(2), pages 178-192, June.
    19. Wagner, Rodrigo & Zahler, Andrés, 2015. "New exports from emerging markets: Do followers benefit from pioneers?," Journal of Development Economics, Elsevier, vol. 114(C), pages 203-223.
    20. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2007. "Productivity, terms of trade and the `home market effect'," Journal of International Economics, Elsevier, vol. 73(1), pages 99-127, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:pugtwp:330206. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/gtpurus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.