An equilibrium displacement approach to analyzing the effects of tariff reduction on farmers’ profits

Abstract

Purpose The purpose of this paper is to develop an equilibrium displacement model (EDM) that is able to evaluate the impacts of a free trade agreement (FTA) on the profits of farmers. Empirical applications of the developed EDM are performed for evaluating the influences of Korea-Chile FTA on the grape industry in Korea. Design/methodology/approach Supply and demand equations together with profit function of individual farmers are converted into log-differential forms that compose the EDM. The cost function of grape producers is estimated for deriving the parameters that are required in applying the developed EDM. Findings The share of profit within revenue and the elasticity of cost with respect to quantity in the cost function play key roles in assessing the change in farmers’ profit. The empirical assessment of the effects of Korea-Chile FTA indicates that this FTA has little impact on the Korean grape market and grape producers in Korea. Originality/value Usefulness of the existing EDM has been limited in evaluating the impacts of exogenous shocks on the individual farmer level. This paper fills this gap by developing an EDM that assesses the impacts of tariff reduction on farm-level profit.

Chile - South Korea FTA: Extensive and intensive margins analysis

“…Even though there is a growing literature on the effects of free trade agreements for Chile (Jean, Mulder, & Ramos, 2014;López & Muñoz, 2008;Reyes, 2005;Schiff, 2002;Schuschny, Durán, & De Miguel, 2008) and Korea (Andreosso-O' Callaghan, 2009;Lakatos & Nilsson, 2017;Nakajima, 2002;Porto, 2018), little evidence exists regarding the bilateral economic relations. Papers referring to the bilateral relation focus on the political process leading to the establishment of the FTA (Chung, 2003;Park & Koo, 2007;Sohn, 2001), or sectorial assessments, where agriculture, as a sensitive sector for the Korean economy, becomes of particular interest (Ahn & Im, 2016; Y.-S. Kim & Choi, 2007;Moon, Seok, & Kim, 2018). Recent studies have looked into the impact of the CKFTA on aggregate bilateral trade flows using synthetic control methods (Muñoz, López, & Cáceres, 2022) and qualitative analysis of the agreement on expanding and adding value to the countries' export baskets (Muñoz, Cáceres, & López, 2021).…”

Economic Consequences for Tree Fruit Intermediaries From Shocks

“…From the simulated outcomes, we calculate welfare effects for growers, packers and processors, and consumers. Though we illustrate our model with the tree fruit industry, it could be used for other perennial commodities that feature multiple output goods with intermediaries, such as the application to grapes in Ahn and Im (2016).…”