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GTAP Resource #7349

"Revisiting Commodity Trade Patterns Amidst Food System Shocks: Lessons from Structural Gravity with Counterfactual Experiments"
by Grant, Jason, Shawn Arita, Sharon Sydow, Chaoping Xie and Nicolas Legrand


Abstract
The structural gravity model predicting bilateral trade is often considered one of the most successful models in international trade, not only because it produces some of the most consistent empirical findings in economics, but also because of its compact specification making it appealing to estimate the impact of trade policy or trade liberalization scenarios. However, less is known about the performance of structural gravity when conducting counterfactual experiments. This study reviews the development and implementation of the structural gravity model applied to land-based commodity trade, highlighting its strengths and limitations. We then conduct a pseudo-validation exercise by examining the predictions of structural gravity for bilateral commodity trade flows and other market variables when conducting counterfactual trade policy experiments. Specifically, we go back to a 2016/17 marketing year baseline (i.e., initial equilibrium) of bilateral trade, crop output and domestic use for wheat, corn, rice and soybeans and estimate the model’s paramters. Next, we impose trade costs (i.e., retaliatory tariffs) that match the tariff levels and trade frictions China applied in its retaliation against U.S. crop products during the 2018/19 U.S.-China trade dispute. We then solve the GE structural gravity model for new equilibrium multilateral resistance terms, crop output, land use, farm gate and export prices, and domestic use following China’s retaliatory tariffs. Finally, we compare the predictions of the structural gravity simulation to realized market outcomes actually observed during the trade dispute.


Resource Details (Export Citation) GTAP Keywords
Category: 2024 Conference Paper
Status: Not published
By/In: Presented during the 27th Annual Conference on Global Economic Analysis (Fort Collins, Colorado, USA)
Date: 2024
Version:
Created: Grant, J. (4/15/2024)
Updated: Grant, J. (4/15/2024)
Visits: 63
- New quantitative trade models
- Model validation and sensitivity analysis


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