This thesis reviews the border effect approach as an application of gravity models of trade and different methods of including multilateral resistance terms (MRTs) in it. Some focus is laid on the endogeneity problem of the approach. In an empirical application of the approach, agricultural trade between Turkey and the EU is analysed; the effect of data pooling and aggregation is studied; the conversion of estimated border effects into ad-valorem tariff equivalents (AVEs) reveals the crucial importance of a reliable measure of the elasticity of substitution when trying to separate the effects of NTBs of the total effect of a border.
Keywords: Non-tariff barriers to trade; gravity model; border effect approach; agricultural trade; EU; Turkey; ad-valorem tariff equivalents;
Table of Contents
1 Introduction
1.1 Why research Non-Tariff Barriers to Trade
1.2 Structure of the Thesis
1.3 Ways of capturing NTBs
1.3.1 The Price Gap Method
1.3.2 Price-based Econometric Methods
1.3.3 Quantity-based Econometric Methods
1.3.4 Simulations Methods
1.4 The Gravity Equation in Physics and Economics
2 The Border Effect Approach
2.1 The Original Approach by McCallum
2.2 Multilateral Resistance Terms
2.2.1 Theoretical Derivation of the Gravity Equation
2.2.2 Use of Price Index Data
2.2.3 Use of estimated Border Effects
2.2.4 Use of Fixed Effects
2.3 The Trouble with Heteroskedasticity – Why OLS-Estimation of Log-linearised Models is problematic
2.3.1 Jensen’s Inequality and its Implications for Log-linearised Models
2.3.2 CES Models and Heteroskedasticity
2.3.3 Finding an Appropriate Estimator for the Non-Linear Model
2.3.4 Maximum Likelihood Estimation and Poisson Regressions
2.3.5 Application of the PPML Estimator in the Gravity Model
2.4 The Problem of Endogeneity
3 Non-Tariff Barriers to Agricultural Trade between Turkey and the EU: An Empirical Analysis
3.1 Aim and Approach of Analysis
3.2 Applied Gravity Model
3.3 Data
3.4 Estimation and Results
3.4.1 Single sectors estimation using Importer-Exporter-Dummies
3.4.2 Pooled and aggregated Regression using PPML
3.4.3 Comparison of aggregated / pooled regression results with literature
3.5 Calculation of AVEs
4 Concluding Remarks
Research Objective and Key Themes
This master thesis aims to analyze and quantify the impact of non-tariff barriers (NTBs) on agricultural trade between Turkey and the European Union. Utilizing the border effect approach within a gravity model framework, the study evaluates trade flows to determine the extent to which national borders and associated barriers impede economic exchange in the fruit, nut, and vegetable sectors.
- Application of the gravity model to measure trade impedance.
- Methodological review of border effect approaches, including multilateral resistance terms and heteroskedasticity.
- Empirical analysis of agricultural trade data between Turkey and the EU.
- Conversion of estimated border effects into ad-valorem tariff equivalents (AVEs).
Excerpt from the Thesis
2.1 The Original Approach by McCallum
In his 1995 paper “National Borders Matter: Canada-U.S. Regional Trade Patterns”, McCallum conducts a widely noted application of the following gravity equation to examine the determinants of international trade patterns: lnXij = a + b lnyi + c lnyj + d lndistij + e DUMMY + uij (2) where Xij: Shipments from country i to country j, yi, yj: GDPs of country i and j, DUMMY: Dummy variable that takes the value one for intra-national and zero for international trade, uij: Error Term.
As apparent from equation (2), McCallum has logarithmised it in order to enable a standard ordinary least squares (hereafter OLS) estimation. He uses the equation to compare 1988 data on trade between Canadian provinces to trade between Canadian provinces and U.S. states in order to show the effect of the U.S.-Canadian border. Notably, 1988 is the year that the FTA, a free trade agreement between the U.S. and Canada, was signed. McCallum assumes that FTA did not yet impact the effect of the border during the examined year. Data on interprovincial trade flows between all ten Canadian provinces as well as trade between those provinces and the 30 U.S. states that account for 90% of U.S.-Canadian trade are taken into account. This means that the author did not include intra-national trade flows between U.S. states, the potential effect of which will be discussed in section 2.2. This leads to a total of 690 observations, out of which 7 are zero-values, the logarithm of which cannot be taken, which is why McCallum does not include them in the estimation. The potential bias arising from this neglect of zero-values will be dealt with in section 2.3.
Summary of Chapters
1 Introduction: Provides an overview of non-tariff barriers to trade, their classification, and the structural design of the thesis.
2 The Border Effect Approach: Explores the theoretical foundations of gravity models, specifically addressing multilateral resistance terms, heteroskedasticity, and the endogeneity problem.
3 Non-Tariff Barriers to Agricultural Trade between Turkey and the EU: An Empirical Analysis: Presents the application of the gravity model, data collection methods, estimation results, and the conversion into tariff equivalents.
4 Concluding Remarks: Summarizes findings regarding the impact of borders on agricultural trade and highlights the importance of elasticity of substitution in quantifying non-tariff barriers.
Keywords
Non-tariff barriers, gravity model, border effect approach, agricultural trade, European Union, Turkey, ad-valorem tariff equivalents, multilateral resistance terms, PPML estimator, trade flow, heteroskedasticity, endogeneity, trade policy, fruit and vegetable sector, OLS estimation.
Frequently Asked Questions
What is the primary focus of this research?
This work focuses on analyzing non-tariff barriers (NTBs) to trade in the agricultural sector, specifically examining the trade relations between Turkey and the European Union.
What are the central thematic areas?
The central themes include the application of the gravity model to trade, the identification of border effects, the estimation of trade impediments, and the calculation of tariff equivalents for non-tariff barriers.
What is the primary research goal?
The main objective is to quantify the trade-impeding effects of the EU-Turkey border using a border effect approach and to convert these findings into ad-valorem tariff equivalents (AVEs).
Which scientific methodology is employed?
The study utilizes a gravity model framework, primarily applying the Poisson Pseudo-maximum Likelihood (PPML) estimator to handle trade flow data and account for heteroskedasticity.
What is covered in the main section of the thesis?
The main section details the empirical analysis of fruit, nut, and vegetable trade, the use of pooled and aggregated data, and the comparison of results with existing literature.
Which keywords best characterize the work?
Key terms include non-tariff barriers, gravity model, border effect, agricultural trade, EU-Turkey trade, PPML, and ad-valorem tariff equivalents.
How is the border effect approach utilized in this study?
The approach is used to compare intra-national trade flows with international trade flows to estimate the extent to which the existence of borders hinders trade volume.
Why is the choice of elasticity of substitution important for this thesis?
The elasticity of substitution is a critical parameter in formula (38); a realistic measure is essential for calculating accurate ad-valorem tariff equivalents, as different values significantly alter the resulting estimates.
What does the thesis conclude about agricultural trade between the EU and Turkey?
The study finds that agricultural products face higher border barriers when exported from the EU to Turkey compared to exports from Turkey to the EU.
- Citar trabajo
- Claus Mayer (Autor), 2012, Non-Tariff Barriers to Agricultural Trade between Turkey and the EU, Múnich, GRIN Verlag, https://www.grin.com/document/208927
