Working Paper No. 1227

Measuring the Impact of Agricultural Production Shocks on International Trade Flows

Published: August 28, 2018Pages: 46Keywords: Food production volatility; Trade costs; Agricultural trade; Gravity modelJEL-codes: F14; F18; Q11; Q17; Q18

Measuring the Impact of Agricultural Production Shocks on International Trade Flows Shon Ferguson and Johan Gars

The purpose of this study is to measure the sensitivity of traded quantities and trade unit values to agricultural production shocks. We develop a general
equilibrium model of trade in which production shocks in exporting countries affect both traded quantities and trade unit values. The model includes per-
unit trade costs and develops a methodology to quantify their size exploiting the trade unit value data. Using bilateral trade flow data for a large sample
of countries and agricultural commodities we find that the intensive margin of trade is relatively inelastic to production shocks, with a 1 percent increase
in production leading to a 0.5 percent increase in exports. We also find that per-unit trade costs are large, comprising 15 to 20 percent of import unit val-
ues on average. Overall, our results suggest that there is room for improving trade as a mechanism for coping with food production volatility.

Shon Ferguson


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