Agricultural Comparative Advantage and Government Policy Interventions

Abstract

International trade patterns are often explained by comparative advantage which is frequently thought to depend on variations in national factor endowments. Government intervention in agricultural markets may also have an impact on trade patterns. This study explores the relation between factor endowments and agricultural trade patterns and examines the impact of agricultural and environmental policies on trade flows. Measures of national endowments of capital, labour, land and energy reserves are computed for a sample of 40 countries and used to estimate Heckscher‐Ohlin‐Vanek equations with net trade in several agricultural commodities as the dependant variable. Variables measuring agricultural policy and environmental regulations are added to the equations and tested for significance. The variables representing government intervention do not contribute to the explanation of trade patterns while national factor endowments do account for much of the variation in trade patterns of grains, oilseeds, cotton, and, to a lesser extent, meat products and an aggregate of all agricultural goods. Commodities such as sugar, tropical products and fruits and vegetables do not appear to be well explained by factor endowments.