An econometric analysis of world wheat trade: a trade flow approach

The central purpose of this study is to investigate the structure and mechanism of commercial world wheat trade with a primary emphasis on the networks of international trade flows of wheat. This was accomplished by constructing an econometric model of world wheat trade. First of all, the world was divided into five exporting countries and ten importing regions. For importing regions, two types of equations were estimated: total import demand equations on per capita basis and trade flow equations. The total import demand equations were specified in the framework of the traditional excess demand theory. In the estimation, special attention was paid to price and income variables to adjust for exchange rate changes. The trade flow equations were based on the theory of demand for products differentiated by place of production, which was originated with Armington. The elasticity of substitution for each importing region was estimated in the linear specification of Armington's model, which was provided by Hickman and Lau. For the supply side analysis of world wheat trade, domestic factors in each exporting country were examined by estimating three kinds of equations; production equations, domestic demand equations, and inventory equations. Each equation was specified and estimated separately for each exporting country;All the equations were incorporated into a system representing the world wheat trade model by introducing the price linkage equations, which were also estimated, and the quantity balanced equations. The complete system of the world wheat trade model was evaluated by historical simulation. The model showed a good ability to simulate most of the endogenous variables with small root-mean-square errors. The simulation model was also used to analyze the impacts of changes in several exogenous variables on world wheat trade. The impacts of income increases, population increases, ending PL 480 exports, and preference changes in importing regions were examined.