nep-int New Economics Papers
on International Trade
Issue of 2005‒06‒14
twenty-six papers chosen by
Martin Berka
University of British Columbia

  1. R&D Policies, Trade and Process Innovation By Haaland, Jan I.; Kind, Hans Jarle
  2. What You Sell is What You Lend? Explaining Trade Credit Contracts By Burkart, Mike; Ellingsen, Tore; Giannetti, Mariassunta
  3. Cultural Biases in Economic Exchange By Guiso, Luigi; Sapienza, Paola; Zingales, Luigi
  4. Trade-Inducing Quality Standards for Used Durables By Clerides, Sofronis; Hadjiyiannis, Costas
  5. A Multi-Country Approach to Factor-Proportions Trade and Trade Costs By Markusen, James; Venables, Anthony J.
  6. Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the US By Limão, Nuno
  7. Trade Protection and Industry Wage Structure in Poland By Goh, Chor-Ching; Javorcik, Beata Smarzynska
  8. Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs By Duranton, Gilles; Storper, Michael
  9. The Foreign Service and Foreign Trade: Embassies as Export Promotion By Rose, Andrew K
  10. Productivity Spillovers, Terms of Trade and the 'Home Market Effect' By Corsetti, Giancarlo; Martin, Philippe; Pesenti, Paolo
  11. Trade and Growth with Heterogeneous Firms By Baldwin, Richard; Robert-Nicoud, Frédéric
  12. The Clash of Liberalizations: Preferential vs. Multilateral Trade Liberalization in the European Union By Karacaovali, Baybars; Limão, Nuno
  13. Trade Costs and Location of Foreign Firms in China By Amiti, Mary; Javorcik, Beata Smarzynska
  14. Product Specific Rules of Origin in EU and US Preferential Trading Agreements: An Assessment By Cadot, Olivier; Carrere, Céline; de Melo, Jaime; Tumurchudur, Bolorma
  15. Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis By Szymanski, Stefan; Valletti, Tommaso
  16. Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization By Limão, Nuno; Olarreaga, Marcelo
  17. Would Multilateral Trade Reform Benefit Sub-Saharan Africans? By Anderson, Kym; Martin, Will; van der Mensbrugghe, Dominique
  18. The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change By Blattman, Christopher; Hwang, Jason; Williamson, Jeffrey G
  19. The Worldwide Economic Impact of the Revolutionary and Napoleonic Wars By O'Rourke, Kevin H
  20. International Trade, Flexible Manufacturing and Outsourcing By Carsten Eckel
  21. Gravity for FDI By Jörn Kleinert; Farid Toubal
  22. Importers, Exporters, and Multinationals: A Portrait of Firms in the U.S. that Trade Goods By Andrew B. Bernard; J. Bradford Jensen; Peter K. Schott
  23. A World Trade Model with Bilateral Trade Based on Comparative Advantage By Anders Hammer Strømman; Faye Duchin
  24. Who supports Free Trade in Latin America? By Eugene Beauliue; Ravi Yatawara; Wei Guo Wang
  25. An Error Correction Analysis of U.S.-Mexico Trade Flows By Thomas M Fullerton Jr; Richard L Sprinkle
  26. Modelling Water Trade in the Southern Murray-Darling Basin By D. Peterson; G. Dwyer; D. Appels; J. Fry

  1. By: Haaland, Jan I.; Kind, Hans Jarle
    Abstract: We set up a simple trade model with two countries hosting one firm each. The firms invest in cost-reducing R&D, and each government may grant R&D subsidies to the domestic firm. We show that it is optimal for a government to provide higher R&D subsidies the lower the level of trade costs, even if the firms are independent monopolies. If firms produce imperfect substitutes, policy competition may become so fierce that only one of the firms survives. International policy harmonization eliminates policy competition and ensures a symmetric outcome. However, it is shown that harmonization is not necessarily welfare-maximizing. The optimal coordinated policies may imply an asymmetric outcome with R&D subsidies to only one of the firms.
    Keywords: process innovation; R&D; subsidies; trade
    JEL: F12 F13 F15
    Date: 2004–12
  2. By: Burkart, Mike; Ellingsen, Tore; Giannetti, Mariassunta
    Abstract: We use a broad range of contractual information to assess the empirical relevance of different financial theories of trade credit. The common feature of all financial theories is that suppliers have an advantage over other lenders in financing credit-constrained firms. While the reasons for the financing advantage differ across theories, they are usually related either to product characteristics or to market structure. We propose a novel identifying strategy that exploits this insight to analyse the trade credit volume and the contract terms. Our analysis suggests that the most important product characteristic for explaining trade credit volume and contract terms is the ease with which the seller’s product can be diverted. Market power in input and output markets also contributes to explain trade credit patterns.
    Keywords: collateral; contract theory; moral hazard; trade credits
    JEL: G32
    Date: 2004–12
  3. By: Guiso, Luigi; Sapienza, Paola; Zingales, Luigi
    Abstract: How much do cultural biases affect economic exchange? We try to answer this question by using the relative trust European citizens have for citizens of other countries. First, we document that this trust is affected not only by objective characteristics of the country being trusted, but also by cultural aspects such as religion, a history of conflicts, and genetic similarities. We then find that lower relative levels of trust toward citizens of a country lead to less trade with that country, less portfolio investment, and less direct investment in that country, even after controlling for the objective characteristics of that country. This effect is stronger for good that are more trust intensive and doubles or triples when trust is instrumented with its cultural determinants. We conclude that perceptions rooted in culture are important (and generally omitted) determinants of economic exchange.
    Keywords: culture; FDI; financial portfolio; priors and expectations; trade and exchange; trust
    JEL: D84 F10 F30
    Date: 2005–01
  4. By: Clerides, Sofronis; Hadjiyiannis, Costas
    Abstract: We construct a theoretical framework to study the impact of asymmetric quality standards on used durable goods on trade flows, profits and consumer welfare. We show that asymmetry in quality standards generates trade in used goods from high to low standard countries while at the same time reducing trade in new goods. The industry in the exporting country benefits from this change while consumers lose out. Consumers in the importing country are the biggest beneficiaries, but domestic industry is hurt. These results suggest that quality standards on used goods are a powerful policy tool whose use should be monitored by the WTO.
    Keywords: durable goods; quality standards; trade in used goods; used durables
    JEL: F10 L10
    Date: 2005–01
  5. By: Markusen, James; Venables, Anthony J.
    Abstract: Classic trade questions are reconsidered by generalizing a factor-proportions model to multiple countries, multi-stage production, and country-specific trade costs. We derive patterns of production specialization and trade for a matrix of countries that differ in relative endowments (columns) and trade costs (rows). We demonstrate how the ability to fragment production and/or a proportional change in all countries’ trade costs alters these patterns. Production specialization and the volume of trade are higher with fragmentation for most countries but interestingly, for a large block of countries, these variables fall following fragmentation. Countries with moderate trade costs engage in market-oriented assembly, while those with lower trade costs engage in export-platform production. These two cases correspond to the concepts of horizontal and vertical affiliate production in the literature on multinational enterprises. Increases in specialization and the volume of trade accelerate as trade costs go to zero with and without fragmentation.
    Keywords: fragmentation; multi-country; multinationals; trade costs
    JEL: F11
    Date: 2005–01
  6. By: Limão, Nuno
    Abstract: Most countries are members of preferential trade agreements (PTAs). The effect of these agreements has attracted much interest and raised the question of whether PTAs promote or slow down multilateral trade liberalization, i.e. whether they are a ‘building block’ or a ‘stumbling block’ to multilateral liberalization. Despite this long-standing concern with PTAs and the lack of theoretical consensus there is no systematic evidence on whether they are actually a stumbling block to multilateral liberalization. We use detailed data on US tariff reductions during the most recent multilateral trade round to provide the first systematic evidence that the US’s PTAs were a stumbling block to its multilateral liberalization. We also provide evidence of reciprocity in multilateral tariff reductions that amplify the stumbling block effect.
    Keywords: MFN tariff concessions; multilateral trade negotiations; preferential trade agreements; reciprocity
    JEL: D78 F13 F14 F15
    Date: 2005–01
  7. By: Goh, Chor-Ching; Javorcik, Beata Smarzynska
    Abstract: This study examines the impact of Poland’s trade liberalization 1994-2001 on the industry wage structure. The liberalization was undertaken in preparation for Poland’s accession to the European Union and was more pronounced in industries with larger shares of unskilled labour. Our analysis indicates that a decrease in an industry tariff was associated with higher wages being earned by workers employed in the industry, controlling for worker characteristics and geographic variables. The result is robust to including year and industry fixed effects, controlling for industry-level exports, imports, concentration, stock of foreign direct investment and capital accumulation. The finding is consistent with liberalization increasing competitive pressures, forcing firms to restructure and improve their productivity, which in turn translates into higher profits being shared with workers. It could also be potentially attributed to trade liberalization lowering the costs of imported inputs, which enhances firm profitability. The result holds when skilled workers are excluded from the sample, thus suggesting that reductions in trade barriers benefited the unskilled in terms of an increase in wages.
    Keywords: globalization; trade liberalization; transition; wages
    JEL: F16
    Date: 2005–02
  8. By: Duranton, Gilles; Storper, Michael
    Abstract: While transport costs have fallen, the empirical evidence also points at rising total trade costs. In a model of industry location with endogenous transaction costs, we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade.
    Keywords: agglomeration; trade costs; transaction costs; transport costs; vertically linked industries
    JEL: D23 D24 R12
    Date: 2005–02
  9. By: Rose, Andrew K
    Abstract: As communication costs fall, foreign embassies and consulates have lost much of their role in decision-making and information-gathering. Accordingly, foreign services are increasingly marketing themselves as agents of export promotion. I investigate whether exports are in fact systematically associated with diplomatic representation abroad. I use a recent cross-section of data covering 22 large exporters and 200 import destinations. Bilateral exports rise by approximately 6-10% for each additional consulate abroad, controlling for a host of other features including reverse causality. The effect varies by exporter, and is non-linear; consulates have smaller effects than the creation of an embassy.
    Keywords: consulate; country; data; destination; empirical; gravity; import; international; panel
    JEL: F13
    Date: 2005–03
  10. By: Corsetti, Giancarlo; Martin, Philippe; Pesenti, Paolo
    Abstract: This paper analyses the welfare implications of international spillovers related to productivity gains, changes in market size, or government spending. We introduce trade costs and endogenous varieties in a two-country general-equilibrium model with monopolistic competition, drawing a distinction between productivity gains that enhance manufacturing efficiency, and gains that lower the cost of firms’ entry and product differentiation. Our model suggests that countries with lower manufacturing costs have higher GDP but supply a smaller number of goods at a lower international price. Countries with lower entry and differentiation costs also have higher GDP, but supply a larger array of goods at improved terms of trade. The sign of the international welfare spillovers depends on terms of trade, but also on consumers’ taste for variety. Higher domestic demand has macroeconomic implications that are similar to those of a reduction in firms’ entry costs.
    Keywords: productivity; taste for variety; terms of trade; trade
    JEL: F32 F41
    Date: 2005–03
  11. By: Baldwin, Richard; Robert-Nicoud, Frédéric
    Abstract: This paper explores the impact of trade on growth when firms are heterogeneous. Our findings can be viewed as relevant to the trade and growth literature on one hand and the heterogeneous-firms trade theory on the other. Our main finding – that freer trade is both anti-growth and welfare worsening from a purely dynamic perspective – contrasts with most findings in the endogenous growth literature. We also show that market-entry costs are anti-growth, but heterogeneity per se is pro-growth. As concerns the heterogeneous-firms literature our main finding is a static-vs.-dynamic trade-off in terms of productivity gains. Freer trade raises measured productivity in a level sense but slows measured productivity growth.
    Keywords: dynamic versus static efficiency; heterogeneous firms; trade and endogenous growth
    JEL: H32 P16
    Date: 2005–03
  12. By: Karacaovali, Baybars; Limão, Nuno
    Abstract: There has been an explosion in the number of preferential trade agreements (PTAs) in the last decade. PTAs are characterized by liberalization with respect to only a few partners and thus, they can potentially clash with and retard multilateral trade liberalization (MTL). Despite this important concern with PTAs, there is almost no systematic evidence on whether they actually affect MTL or not. We model the effect of PTAs on MTL and show that PTAs slow down MTL unless they have a common external tariff and allow for internal transfers. Next, we use detailed data on product-level tariffs negotiated by the European Union in the last two multilateral trade rounds to structurally estimate our model. We confirm the main prediction – the European Union's PTAs have clashed with its MTL – and find that the effect is quantitatively significant. Moreover, we also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of MTL in the European Union.
    Keywords: MFN tariff concessions; multilateral trade negotiations; preferential trade agreements
    JEL: D78 F13 F14 F15
    Date: 2005–03
  13. By: Amiti, Mary; Javorcik, Beata Smarzynska
    Abstract: This study examines the determinants of entry by foreign firms, using information on 515 Chinese industries at the provincial level during 1998-2001. The analysis, rooted in the new economic geography, focuses on market and supplier access within and outside the province of entry, as well as production and trade costs. The results indicate that market and supplier access are the most important factors affecting foreign entry. Access to markets and suppliers in the province of entry matters more than access to the rest of China, which is consistent with market fragmentation due to underdeveloped transport infrastructure and informal trade barriers.
    Keywords: foreign direct investment; market access; supply access; trade costs
    JEL: F10 F23
    Date: 2005–03
  14. By: Cadot, Olivier; Carrere, Céline; de Melo, Jaime; Tumurchudur, Bolorma
    Abstract: Building on earlier work by Estevadeordal, we construct a synthetic index (R-index) intending to capture the restrictiveness on market access due to product specific rules of origin (PSRO) that apply at the tariff-line level. The R-index is constructed for rules of origins under NAFTA and under the single list applying to PANEURO, the new regime applying to all EU preferential trade agreements. The R-index highlights how identical PSRO have different impacts across countries, and how the complexity of PSRO varies across sectors. Having controlled for the extent of tariff preference at the tariff-line level, the R-index contributes to account for differences in utilization rates at the tariff line level. The index is then used to assess composition effects across countries subjected to some set of PSRO and to compute estimates of the compliance costs associated with rules of origin under both regimes.
    Keywords: costs; NAFTA; PANEURO; rules of origin
    JEL: F13 F15
    Date: 2005–04
  15. By: Szymanski, Stefan; Valletti, Tommaso
    Abstract: This paper analyses the issue of parallel trade (arbitrage) for products protected by intellectual property rights. Many countries have traditionally allowed owners of intellectual property rights to prohibit arbitrage in the face of international price discrimination. In a well-known paper Malueg and Schwartz (1994) showed that this policy decreases social welfare when the same markets are served in both regimes, with and without arbitrage. Their model considered only the setting of prices, and not investment in product development. We consider a two-stage game where firms choose quality first and then prices. Since the threat of arbitrage ex post reduces the incentive to invest ex ante, the net benefits of parallel trade may vanish. We also show that the size of the welfare effects is significantly affected by the presence of a ‘generic’ product, which represents a form of competition for the monopolist. The monopolist will introduce a ‘fighting brand’ to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments.
    Keywords: investments; parallel trade; price discrimination
    JEL: F13 L12 O34
    Date: 2005–04
  16. By: Limão, Nuno; Olarreaga, Marcelo
    Abstract: The proliferation of preferential trade liberalization over the last 20 years has raised the question of whether it slows down multilateral trade liberalization. Recent theoretical and empirical evidence indicates this is the case even for unilateral preferences that developed countries provide to small and poor countries but there is no estimate of the resulting welfare costs. To avoid this stumbling block effect we suggest replacing unilateral preferences by a fixed import subsidy. We argue that this scheme would reduce the drag of preferences on multilateral liberalization and generate a Pareto improvement. More importantly, we provide the first estimates of the welfare cost of preferential liberalization as a stumbling block to multilateral liberalization. By combining recent estimates of the stumbling block effect of preferences with data for 170 countries and over 5,000 products we calculate the welfare effects of the United States, European Union and Japan switching from unilateral preferences to Least Developed Countries to the import subsidy scheme. Even in a model with no dynamic gains to trade we find that the switch produces an annual net welfare gain for the 170 countries ($4,354 million) and for each group: the United States, European Union and Japan ($2,934 million), Least Developed Countries ($520 million) and the rest of the world ($900 million).
    Keywords: MFN tariff concessions; multilateral trade negotiations; preference erosion; preferential trade agreements
    JEL: D78 F13 F14 F15
    Date: 2005–05
  17. By: Anderson, Kym; Martin, Will; van der Mensbrugghe, Dominique
    Abstract: This paper examines whether, in the presence of trade preferences, Sub-Saharan African economies, and especially its poorest households, could gain from multilateral trade reform. The World Bank’s LINKAGE model of the global economy is employed to examine the impact first of current trade barriers and agricultural subsidies, and then of possible outcomes from the WTO’s Doha round. The results suggest moving to free global merchandise trade would boost real incomes in sub-Saharan Africa proportionately more than in other developing countries or in high-income countries, despite a terms of trade loss in parts of the region. Farm employment and output, the real value of agricultural and food exports, the real returns to farm land and unskilled labor, and real net farm incomes would all rise in the region, thereby alleviating poverty. A Doha partial liberalization of both agricultural and no-agricultural trade could take the region some way towards those desirable outcomes, but more so the more both rich and poor countries reduce their applied tariffs.
    Keywords: computable general equilibrium; multilateral negotiationa; sub-Saharan Africa; trade policy; WTO
    JEL: C68 D58 F13 F17 O55 Q17
    Date: 2005–05
  18. By: Blattman, Christopher; Hwang, Jason; Williamson, Jeffrey G
    Abstract: Most countries in the periphery specialized in the export of just a handful of primary products for most of their history. Some of these commodities have been more volatile than others, and those with more volatile prices have grown slowly relative both to the industrial leaders and to other primary product exporters. This fact helps explain the growth puzzle noted by Easterly, Kremer, Pritchett and Summers more than a decade ago: that the contending fundamental determinants of growth - institutions, geography and culture - exhibit far more persistence than do the growth rates they are supposed to explain. Using a new panel database for 35 countries, this paper estimates the impact of terms of trade volatility and secular change on country performance between 1870 and 1939. Volatility was much more important for accumulation and growth than was secular change. Additionally, both effects were asymmetric between Core and Periphery, findings that speak directly to the terms of trade debates that have raged since Prebisch and Singer wrote more than 50 years ago. The paper also investigates one channel of impact, and finds that foreign capital inflows declined steeply where commodity prices were volatile.
    Keywords: growth; periphery; terms of trade; volatility
    JEL: F10 N10 O10
    Date: 2005–05
  19. By: O'Rourke, Kevin H
    Abstract: The paper provides a comparative history of the economic impact of the Revolutionary and Napoleonic Wars. By focussing on the relative price evidence, it is possible to show that the conflict had major economic effects around the world. Britain's control of the seas meant that it was much less affected than other nations, such as France and the United States. Explicit welfare calculations are provided for four countries, Britain, France, Sweden and the United States. Welfare losses were largest in the US, where they were of the order of 5-6% per annum; by contrast, they lay between 3-4% per annum in France, and between 1.7-1.8% per annum in Britain. On the other hand, the conflict helped pave the way for the more liberal international economic environment of the long 19th century.
    Keywords: trade; war
    JEL: F10 N70
    Date: 2005–05
  20. By: Carsten Eckel
    Abstract: This study analyzes the impact of international trade on the diffusion of flexible manufacturing in a general equilibrium framework. Suppliers produce a flexible base product that can be adapted to the specific input requirements of a continuum of downstream industries. The vertical structure is determined by the trade-off between economies of scope in flexible manufacturing and product specificity of in-house production. In this framework, globalization can lead to alternating waves of insourcing and outsourcing, but once the world market reaches a threshold size, outsourcing prevails. We also derive a number of testable predictions with regard to firm size and productivity measures that are in line with recent empirical and casual evidence.
    Keywords: International Trade, Flexible Manufacturing, Outsourcing, Vertical Integration, Globalization, General Equilibrium
    JEL: F12 L11 L22
    Date: 2005–06–07
  21. By: Jörn Kleinert; Farid Toubal
    Abstract: We derive gravity equations from three different general equilibrium models incorporating multinational firms. We show that gravity equations are particularly adapted to the analysis of foreign affiliates\' activities of multinational firms. However, the different theoretical models lead to different specifications and interpretations of the empirical results. This is particularly the case considering gravity equations derived from factor proportion models compared to those derived from proximity concentration theories.
    Keywords: Gravity equation, multinational firms, heterogeneity
    JEL: F23 F12 C21
    Date: 2005–06–09
  22. By: Andrew B. Bernard; J. Bradford Jensen; Peter K. Schott
    Abstract: This paper provides an integrated view of globally engaged U.S. firms by exploring a newly developed dataset that links U.S. international trade transactions to longitudinal data on U.S. enterprises. These data permit examination of a number of new dimensions of firm activity, including how many products firms trade, how many countries firms trade with, the characteristics of those countries, the concentration of trade across firms, whether firms transact at arms length or with related parties, and whether firms import as well as export. Firms that trade goods play an important role in the U.S., employing more than a third of the U.S. workforce. We find that the most globally engaged U.S. firms, i.e. those that both export to and import from related parties, dominate U.S. trade flows and employment at trading firms. We also find that firms that begin trading between 1993 and 2000 experience especially rapid employment growth and are a major force in overall job creation.
    JEL: F10 F16 F23 J21
    Date: 2005–06
  23. By: Anders Hammer Strømman (Norwegian University of Science & Technology Department of Energy and Process Technology, Industrial Ecology Program H¿yskoleringen 5, 7491 Trondheim, Norway); Faye Duchin (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)
    Abstract: This paper describes an extension of Duchin's World Trade Model to include the explicit representation of transportation costs, permitting the endogenous determination of bilateral trade &degree;ows and region-specific prices. The original model is a linear program that, based on comparative advantage and the minimization of factor use, determines regional production and trade &degree;ows as well as world prices and scarcity rents for m regions, n goods, s transportation sectors, and k factors. The new World Trade Model with Bilateral Trade achieves its objectives by introducing transportation services and geographically dependent transportation requirements for each traded good and each pair of potential trade partners. The formulation of this model and its major properties are presented, and results from a preliminary analysis with 11 regions, 8 goods, 4 transportation sectors, and 6 factors of production are reported and compared with corresponding results from the World Trade Model.
    JEL: F19 C61 C67
    Date: 2005–06
  24. By: Eugene Beauliue (Univeristy of Calgary & International Trade Canada); Ravi Yatawara (University of Delaware); Wei Guo Wang (University of Calgary)
    Abstract: This paper examines individual trade policy preferences across the 17 countries in Latin America. The focus is on whether skilled or unskilled workers are more likely to support liberalized trade and on whether country characteristics, such as factor endowments, alter the preferences of skilled and unskilled workers. Based on the standard Heckscher-Ohlin model and the Stolper-Samuelson theorem, wage inequality in developing countries will decrease under free trade and unskilled workers will benefit. We find that on average skilled workers are more likely than unskilled workers to support free trade in Latin American countries. Separate country regressions reveal that this pattern is only statistically significant in 8 out of 17 Latin American countries. However, there are no countries in our sample in which unskilled workers are statistically more likely to support free trade than skilled workers. Not even in the lowest skill endowed country among our 17 Latin American countries. We also find that people from Latin American countries with higher GDP, faster growth, more cropland, and a longer period of time since reform were more likely on average to support free trade.
    Keywords: Trade policy; Latin America; Stolper-Samuelson theorem
    JEL: F1 F2
    Date: 2005–06–04
  25. By: Thomas M Fullerton Jr (University of Texas at El Paso); Richard L Sprinkle (University of Texas at El Paso)
    Abstract: Estimation of bilateral trade elasticities is less well documented than is the case for aggregate trade flows. This study estimates bilateral trade equations for Mexico and the United States. The empirical analysis is carried out using an error correction approach that allows imports and exports to adjust over time to changes in the independent variables that affect the demands for them. Results obtained indicate that imports and exports between the two neighbors react heterogeneously to variations in domestic prices, foreign prices, and currency values. Lag structures between the two trade equations also differ from each other.
    Keywords: Bilateral Trade Flows, Error Correction Analysis, Mexico
    JEL: F14
    Date: 2005–06–07
  26. By: D. Peterson (Productivity Commission); G. Dwyer (Productivity Commission); D. Appels (Productivity Commission); J. Fry (Productivity Commission)
    Abstract: Released in November 2004, the paper uses TERM-Water, a bottoms-up regional CGE model of the Australian economy, to examine the regional effects of expanding trade of irrigation water in the southern Murray- Darling Basin. The study finds that water trading dampens the impact of water allocation cuts on gross regional product (GRP). The benefits of introducing trading within irrigation districts are greater than the further benefits of expanding trade to between these regions. Permitting trade of seasonal allocations allows irrigators to reallocate water in reaction to climatic conditions and water availability - and it is this flexibility that enables GRP reductions to be minimised.
    Keywords: southern murray-darling basin, CGE model, irrigation water, water allocation, water trade,
    JEL: R
    Date: 2005–06–06

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