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Rafael de Arce (UAM University) Ramón Mahía (UAM University)

GLOBAL EFFECT ON INTERNATIONAL PRICES OF EU-MEDITERRANEAN PARTNER COUNTRIES BILATERAL AGRICULTURAL LIBERALIZATION. Rafael de Arce (UAM University) Ramón Mahía (UAM University) ERC / METU International Conference in Economics, Ankara 6 th September 2003. PRESENTATION.

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Rafael de Arce (UAM University) Ramón Mahía (UAM University)

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  1. GLOBAL EFFECT ON INTERNATIONAL PRICES OF EU-MEDITERRANEAN PARTNER COUNTRIES BILATERAL AGRICULTURAL LIBERALIZATION Rafael de Arce (UAM University) Ramón Mahía (UAM University) ERC / METU International Conference in Economics, Ankara 6th September 2003

  2. PRESENTATION • General framework of analysis: • International Trade Evolution • Impact on international trade conditions after liberalization processes • Agricultural Trade Liberalization Process UE-MPC’s Countries • Two footnotes: • Econometrical exercise • Preliminary results of FEMISE project

  3. PRESENTATION FEMISE Project Framework Agri-Trade Liberalisation UE - MPC’s Change in trade prices Chain effects in the whole MPC’s economies (Dynamic TIO analysis) Change in trade flows

  4. CASE OF STUDY (Some details) • Interest on NET price changes after EU-MPC's agricultural liberalisation Trade prices UP Domestic Support Reduction in EU Agri-Trade Liberalisation UE - MPC’s NET EFFECT? Import Tariff Cuts in MPC´s Trade prices DOWN

  5. CASE OF STUDY (Some details) • Interest on NET price changes after EU-MPC's agricultural liberalisation • Selection of countries and products (Comext, FADN, FAO, OECD databases )

  6. MODELLING THE EFFECT OF REDUCTION IN EU AGRICULTURAL SUPPORT I: Description • The model: • Pit: International price logarithm of product “i” at time "t" • PSE it: Producer Support Estimate of product “i” at time "t" • EUP it: EU export price of product “i” at time "t" • HPP it: Hodrick-Prescott filter series

  7. MODELLING THE EFFECT OF REDUCTION IN EU AGRICULTURAL SUPPORT I: Description • Relevant Comments: • Equation working at 2 digits level of product • PSE instead of TSE (CSE and GSSE rejected) • Hodrick-Prescott filter series as a innovation to consider volatility in raw materials prices • Export EU Price as exogenous (Poonyth, 2000), (Frandsen, 2003) • Simple Partial Equilibrium Model

  8. MODELLING THE EFFECT OF REDUCTION IN EU AGRICULTURAL SUPPORT II: Results • Relevant Comments: • Good Adjustment • Variables significance • Affordable mulcolinearity problems • General Empirical results: • Negative relationship Prices - PSE proved • Large connection between Prices and PSE in two cases: Cereals and Sugar

  9. MODELLING THE EFFECT OF REDUCTION IN EU AGRICULTURAL SUPPORT II: Results Coefficients and adjustment details (i)

  10. MODELLING THE EFFECT OF REDUCTION IN EU AGRICULTURAL SUPPORT II: Results Coefficients and adjustment details (ii)

  11. MODELLING THE EFFECT OF REDUCTION IN EU AGRICULTURAL SUPPORT III: Simulation • Scenarios: • EU : 55% reduction in the Aggregate Measurement of Support (AMS) starting from the level of commitments made in the last round of negotiations. • USA: reduction of trade-distorting support to 5 percent of a country’s total value of agriculture production (the 5 percent rule) over a 5-year period

  12. MODELLING THE EFFECT OF REDUCTION IN EU AGRICULTURAL SUPPORT III: Simulation • Simulation Results:

  13. MODELLING THE EFFECT OF REDUCTION IN EU AGRICULTURAL SUPPORT III: Simulation • Simulation Results: • Similar results in both scenarios • Big impact on cereal prices • Relevant changes in other agricultural goods prices but not unusual changes if we look at a secular price series for agricultural goods

  14. EU-MPC'S TRADE PRICES AFTER SUPPRESION OF AGRICULTURAL SUPPORT AND TARIFFS • Main questions • Can the EU maintain agricultural production without the domestic support implemented through the CAP? • How much market share would the EU have with different prices?

  15. EU-MPC'S TRADE PRICES AFTER SUPPRESION OF AGRICULTURAL SUPPORT AND TARIFFS • Can the EU maintain agricultural production without the domestic support implemented through the CAP? Exploitations bigger than 40 ESU receive 50% of domestic support / 59% of subventions are received by just 22% of agricultural exploitations.

  16. EU-MPC'S TRADE PRICES AFTER SUPPRESION OF AGRICULTURAL SUPPORT AND TARIFFS • How much market share would the EU have with different prices? ?

  17. COMPUTATION OF CHANGE IN BILATERAL PRICES AFTER A TARIFF ELIMINATION IN MPC’s • Measure of trade protection just using MFN ad-valorem tariff weighted averages: • Non-tariff measures considered • Average data considered • Tariff peaks, tariff dispersion and tariff escalation ignored • High level of protection • Low movement in international trade prices • Final Net effect similar to the one linked with support reduction.

  18. SUMMARY • Valuable tool for primary simulation of domestic support reduction • Empirical results shows a low effect of support reduction in agricultural world prices or production capacity in both scenarios (UE / USA)

  19. SUMMARY • If trade liberalisation seems to be irrelevant for trade prices and production level, What´s the use of it? • Rise in import capacity volume for MPC’s countries without increase in import yield • Production system efficiency improved

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