The economics of geographical indications (GIs) is assessed within a vertical product differentiation framework that is consistent with the competitive structure of agriculture. It is assumed that certification costs are needed for GIs to serve as (collective) credible quality certification devices, and production of high‐quality product is endogenously determined. We find that GIs can support a competitive provision of quality and lead to clear welfare gains, although they fall short of delivering the (constrained) first best. The main beneficiaries are consumers. Producers may also accrue some benefit if production of the high‐quality products draws on scarce factors that they own.

The Armington trade model distinguishes commodities by country of origin, and import demand is determined in a separable two-step procedure. This framework has been applied to numerous international agricultural markets with the objective of modeling import demand. In addition, computable general equilibrium (CGE) models commonly employ the Armington formulation in the trade linkage equations.The purpose of this paper is to test the Armington assumptions of homotheticity and separability with data from the international cotton and wheat markets. Both parametric and nonparametric tests were performed, and the empirical results reject the Armington assumptions. This has important implications for international trade modeling and CGE modeling.

The competitive structure of U.S. agricultural exports is examined using a model of exporter behavior based on pricing decisions across destination markets. Market power is revealed in the adjustment patterns of export prices in response to exchange rate movements. The results reject the hypothesis that the export pricing decisions by U.S. firms are consistent with price discrimination across destination markets for cotton, corn, and soybeans. The strongest evidence against the competitive market structure is obtained for international trade in wheat, where results indicate that the two largest importers (Soviet Union and PRC) may exert market power to obtain lower prices.

This article investigates the determinants of foreign direct investment and its relationship to trade in the U.S. food industry. A multinational corporation maximizes profits by choosing between production at home, which is exported, and production in a host country. This introduces the possibility that foreign affiliate sales can substitute and/or complement exports. The empirical framework consists of a four-equations system with foreign affiliate sales, exports, affiliate employment, and FDI as endogenous variables. The results confirm small substitution between foreign sales and exports, and that the host country's protection policies affect the decision to invest abroad. Copyright 1999, Oxford University Press.

We present a model with two exporters who ship a differentiated commodity to the same import destination. All pricing occurs in a common currency, that of the home exporter. We show that the foreign-exporter to home-exporter exchange rate can influence the home exporter's pricing decision. It has been previously argued that only the importer to home-exporter exchange rate matters to the home exporter.

This paper analyzes the effect of exchange rate risk on U.S. agricultural trade flows. A model which incorporates exchange rate risk is applied to ten countries. While exchange rate risk was not significant in the seven developed markets, results indicate that the exchange rate variable adversely affected U.S. agricultural exports to the three developing countries used in the analysis. These findings underscore the importance of exchange rate risk in developing countries trading behavior. Issues such as establishment of well-developed financial and commodity markets in developing countries must be addressed in future research.The risk-averse importer is assumed to maximize expected utility with respect to profits. (Utility is assumed to be an increasing functon of profits and a decreasing function of the standard deviation of profits.) While the importer receives orders for its output in the first period, it only pays for the imports and receives payments for its output in the second period. Thus, prices are determined in the first period and the expected utility problem is and others postulate that exchange rate risk reduces trade. However, earlier results (Hooper and Kohlhagen) lend little support to this hypothesis; although Cushman (1988), by using measures of real exchange rate risk, found significant adverse effects of exchange rate risk on U. S. trade flows.The model (adopted from Hooper and Kohlhagen) assumes that the demand for imports is a derived demand, where imports are used in the domestic production of the final goods. This assumption is particularly true in agricultural trade since most goods are intermediate in nature. Further, the importer faces a domestic demand for its output, Q, which is a function of domestic income Y, price of other goods (substitutes and complements), PD, and own price, P:The effects of exchange rates on agricultural trade was raised by Schuh (1974Schuh ( , 1976 and was followed by numerous efforts to quantify the effects of the nominal exchange rate on trade (Chambers andJust 1979, 1981;Konandreas, Bushnell, and Green; and others) or the effects of the real exchange rate on trade (Longmire and Morey; Batten and Belongia; Henneberry, Henneberry, and Tweeten). A neglected issue in those studies is the impact of exchange rate risk on agricultural trade flows (Williamson, Kenen and Rodrik, Anderson and Garcia).In this paper, a model which incorporates exchange rate risk is applied to ten countries to evaluate the impact of exchange rate risk on agricultural bilateral trade flows. The first section will present the development of the conceptual model. This is followed by the data and estimation results. Finally, conclusions and implications are drawn. Exchange Rate Risk and Model SpecificationStudies of the effects of exchange rate risk on trade by Clark, Hooper and Kohlhagen, Gotur, Cushman (1983, 1988, De Grauwe, Maskus,

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According to the J-curve theory, following a currency depreciation, there will be an initial deterioration of the trade balance before an improvement is realized. This paper finds empirical evidence indicating the first segment of the J-curve does exist for the U.S. agricultural trade balance. A 10% depreciation of the U. S. dollar is estimated to lead a deterioration of the agricultural trade balance that will last for about nine months.In the literature on international trade theory, the J-curve phenomenon predicts that, following a currency depreciation, an initial deterioration of the trade balance will occur before an improvement is realized (Krueger, Magee, Junz and Rhomberg). The hypothesized response of the trade balance resembles a J in shape. The J-curve hypothesis is based on a lagged adjustment process. This argument is important because it suggests that the initial impact of a depreciation is negative (i.e., the first segment of the J-curve) and time passes before the positive effects of a depreciation are realized.The policy relevance of linkages among macroeconomic policy, the exchange rate, and V.S. agriculture have been described by Schuh (1974Schuh ( , 1976 and McCalla. We extend this line of inquiry by investigating the relationship between a currency depreciation and the agricultural trade balance. We focus on the characteristics of the short-term response and empirically determine whether or not the agricultural trade balance benefits from a fall in the value of the dollar. The impact of a currency change on both imports and exports is studied whereas most previous work has only considered the linkage between the exchange rate and agricultural exports. . This paper also benefitted from the reviewers' constructive suggestions. A better understanding of the impact of exchange rate changes on the trade balance is especially important in light of the 1985-86 dollar depreciation and the simultaneous agricultural trade balance deterioration. The V.S. dollar plunged in value in early 1985.Within two years it declined by about 45% against the yen, the Swiss franc, and the German mark. Over the same period it fell by approximately 300,lo against the British pound. Despite the fall in the value of the dollar the V.S. agricultural trade balance continued to decline for two years and did not begin to improve until 1987. Figure 1 illustrates the quarterly value of exports and imports of V. S. agricultural products for the 1979-87 period. How much, if any, of the 1985 and 1986 decline in the agricultural trade balance can be attributed to the J-curve effect? The purpose of this paper is to shed some light on this question. The J-Curve EffectThe effects of an exchange rate depreciation on the trade balance are related to the underlying determinants of the demand and supply elasticities of exports and imports. In the short run, production, consumption, inventory, and transaction lags are involved and, consequently, the export supply and import demand elasticities are small (McKinnon, Junz and Rhomberg). Thi...