The Effect of Aggregation Bias: an NTB-Modeling Exercise for Turkey's Agro-food Trade with the EU

There is always a debate among modelers about the choice of the model to apply for policy analysis. However, there is not a straightforward answer to define the most favored model in terms of its data aggregation level or its structure. While the highest possible data disaggregation level is preferred for in-depth analysis, highly disaggregated models are mainly set in partial equilibrium (PE) frameworks. General equilibrium (GE) models, on the other hand, are predominantly more aggregated. Comparing the results of a PE model constructed with disaggregated data to the results of a GE model developed with aggregated data is common in current literature (e.g., Charteris and Winchester, 2010; Grant et al., 2007, 2008; Narayanan et al., 2010a, 2010b, Nielsen, 1999), although this approach does not allow identifying the effects of the sector breakdown solely. Aggregation bias is also observed in econometric estimations (e.g., Agostino et al., 2007; Hillberry, 2002). With the decreasing level of, the importance of non-tariff barriers (NTBs) in trade has risen. Especially food and agriculture sector is characterized by high NTBs. Thus, especially in the evaluation of FTAs, NTBs show great importance. Recent literature shows that NTBs have greater impact on welfare results than effect of tariffs due to regional trade agreements (e.g., Engelbert et al. 2014, Lejour and Mooij, 2001). However, to the best of our knowledge, comparing the effect of different sector aggregation level in terms of evaluation of NTBs is missing in the literature. In this article, we take the importance of food and agriculture trade between Turkey and the EU, the highly faced NTBs in this sector and Turkey's potential accession to the European Union as our modeling exercise. By doing so, we quantify the effect of data disaggregation level. Our results show that the use of different sector level in the estimation of NTBs and their implementation to GTAP model result in different welfare changes.