Trade Creation, Diversion Effects and Exchange Rate Volatility in the Global Meat Trade

Trade Creation, Diversion Effects and Exchange Rate Volatility in the Global Meat Trade

A modified gravity model is specified and applied to meat trade markets to identify factors affecting bovine and swine meat trade flows. The model is used to evaluate the effects of bilateral and regional free trade agreements. This study reveals that gravity models can be effectively parameterized and used in single commodity trade studies. Using data from 1986 to 2009, the results show that income, population, production capacity, distance, and exchange rate volatility are major factors affecting meat trade. The findings also demonstrate that the formation of the North American Free Trade Agreement and European Union significantly enhanced bovine and swine meat trade flows through trade creation among members and trade diversion from non-members to members. The Common Market of the South led to trade creation with inconclusive results for trade diversion while the Association of South-East Asian Nations led to trade diversion with no evidence of increased intra-bloc trade. The hoof-and-mouth disease significantly impaired bovine meat trade flows.