Academic journal article Journal of Agricultural and Resource Economics

Tariff Changes and the Margins of Trade: A Case Study of U.S. Agri-Food Imports

Academic journal article Journal of Agricultural and Resource Economics

Tariff Changes and the Margins of Trade: A Case Study of U.S. Agri-Food Imports

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

Recent advances in the empirical and theoretical trade literature emphasize the role of firm-level productivity differences to explain bilateral trade patterns along the intensive and extensive margins (Melitz, 2003; Helpman, Melitz, and Rubinstein, 2008; Chaney, 2008; Bernard et al., 2009). Melitz's (2003) framework shows that only the most productive firms are able to enter export markets. Reductions in trade costs, either from lower tariffs or transportation costs, will therefore encourage firms that are currently exporting to expand their export sales (i.e., the intensive margin) and induce new firms to select into export markets (i.e., the extensive margin). Chaney (2008) shows succinctly that the degree of competition among products influences the intensive margin through its effect on variable trade costs, while the extensive margin depends more on the fixed costs of exporting and firm heterogeneity. Absent firm-level data, Helpman, Melitz, and Rubinstein (2008) consider how the decision to export is affected by trade costs at the country level using zero trade flow records. Bernard et al. (2009) find that short-term (long-term) variations in imports and exports (e.g., oneyear intervals) are explained by changes in the intensive (extensive) margin.

In addition to new firms entering export markets (extensive partner margin), firms that are currently exporting may expand the number of products/varieties (extensive product margin) exported. Bernard, Redding, and Schott (2011) extends the Melitz model to multi-product and multi-destination firms and find that trade liberalization can induce firms to expand into export markets by adding new products using U.S. manufacturing data and incorporating evidence from the Canada-U.S. Free Trade Agreement (CUSTA). Hummels and Klenow (2005) examined crosscountry differences in exported varieties defined at the six-digit level of the harmonized system (HS) and find that the extensive product margin accounts for 60% of the trade of larger economies. For U.S. trade, Broda and Weinstein (2006) estimate that 30% of the growth of imports over 1972-2001 occurred in product varieties that previously did not exist.

Other studies have reviewed the effects of Free Trade Agreements (FTAs) on the extensive margin of firm- and product-level trade (Molina, Bussolo, and Iacovone, 2010; Kehoe and Ruhl, 2013). Molina, Bussolo, and Iacovone (2010) find that FTAs exert a positive effect on the number of new exporters and new products at the firm level within the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR). Kehoe and Ruhl (2013) introduce a "least-traded goods" effect after implementation of the North American Free Trade Agreement (NAFTA), whereby goods that were not exported in the past or experienced trade below a certain threshold are still potential exports along the extensive margin. Their results point to the fact that-with no significant changes in NAFTA's trade policy-trade flows along the extensive margin are negligible. However, Iacovone and Javorcik Iacovone and Javorcik (2008) provide evidence that Mexican firms increased the number of goods exported after the implementation of NAFTA in 1994, and Debaere and Mostashari (2010) find that U.S. tariff changes on industrial product imports have a small but statistically significant effect on the extensive product margin of U.S. imports.

This article assesses the extent to which trade liberalization vis-à-vis tariff changes affects the probability of entering, exiting, or maintaining a presence in the U.S. agri-food import market. Unlike previous studies, this study develops a multinomial framework to study three mutually exclusive margins of agri-food imports-existing, new, and disappearing margins of bilateral trade. More specifically, the purpose of this article is threefold. First, following Helpman, Melitz, and Rubinstein (2008) we develop a theoretical logit model at the country-product level to explain the margins of U. …

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