The impact of entry costs on export market participation in agriculture

Abstract

Theoretical models of market entry imply that sunk costs are an important factor in the decision to export. Following Helpman, Melitz, and Rubinstein (2008), we develop a simple model of foreign market participation and use a Bayesian method to estimate the resulting dynamic discrete-choice model with lagged dependent variable. Employing a balanced panel data that follows 81 trading partners for 30 years from 1971 to 2000, we estimate our model and compute the marginal effect of sunk costs on the likelihood of export market participation. We find that such costs are economically and statistically important for trade in all of the six major agricultural commodities (Cereals, Dairy, Fish, Meat, Vegetables and Fruits, and Sugar), for agricultural producers in both developed and developing countries. We also find evidence suggesting that, in general, market access for both developed and developing exporters had improved in the years following the Uruguay round of trade negotiations (1995)(1996)(1997)(1998)(1999)(2000).JEL classifications: C11, F14, Q17

Analyzing Trade Liberalization Effect in the Egg Sector Using a Dynamic Gravity Model

“…The impact of the exporter's domestic agricultural production is expected to be positive, while the importer's domestic agricultural production is expected to reduce the probability of nonzero trade ‡ows. Our results con…rm our expectations and are in line of those of Ghazalian, Larue and Gervais (2009) and Kandilov and Zheng (2011). We assess the impact of the history of export market participation proxied by the lagged value of participation.…”

“…The …nding of Kandilov and Zheng (2011) that market access improved in the years following the Uruguay Round seems to be refuted in the egg industry. Figures 5-6 show a very slow decrease in the average applied ad valorem tari¤s.…”

“…i is the importer …xed e¤ect, trade costs are de…ned by t and 7 For details see Helpam et al (2008) and the applications of Tamini et al (2010) and Kandilov andZheng (2011). 8 Feenstra (2004) argues that …xed e¤ects are appropriate to estimate the average impact of the border barriers relative to cross-border trade.…”

“…De Benedictis and Vicarelli (2005) speak of "inertia in trade ‡ows." Kandilov and Zheng (2011) show that sunk costs are economically and statistically important for trade in major agricultural commodities even if access to export markets has improved in the years following the Uruguay Round. Taking persistence into account, Olivero and Yotov (2012) suggest a dynamic gravity equation based on capital accumulation.…”

“…However, relatively few studies account for this feature when estimating gravity equations. Tamini, Gervais and Larue (2010) and Kandilov and Zheng (2011) are recent applications of the HMR framework to agricultural products.…”