A gravity approach to the determinants of international bovine meat trade

Abstract

Due to the complexity and dynamism of the global beef market, policymakers need a theoretically consistent, rigorous and quantitative analysis to validate and quantify the effects of different factors that are believed to drive beef trade. The general objective of this dissertation was to validate and quantify the factors that drive and influence international beef trade in order to facilitate and improve the decision-making behaviour of policymakers. The gravity model methodology was identified as the ideal framework to address the general objective of this dissertation, and was used as the primary tool to analyse the factors that drive and influence beef trade. The specific objectives were to gain an understanding of prominent issues that influence international beef trade, to review the gravity modelling methodology and to model the effects of various issues on the volume of beef trade based on trade data among leading importers and exporters between 1996 and 2010. A model was estimated using two separate equations, referred to as Model B1 and Model B2. For each of these equations the dependant variable varied to represent: bovine cuts boneless, fresh or chilled (HS 020130); bovine cuts boneless, frozen (HS 020230); and an aggregation of these two products designated as "Total beef". Model B1 was estimated with the full gravity model specification, including export prices. Since very few studies on commodity specific gravity models exist and have never modelled beef exports prices directly, it was decided to run an additional model, Model B2, without the export price variable. The Wald Chi-square test confirmed that the variables included in the model were significant in explaining the variation in the volume of exports. Issues that were included in the specification included beef production in a beef exporter, beef consumption in a beef importer, tariff measures applied by importing countries, income per capita of consumers in importing countries, export prices and trade bans due to animal diseases. The coefficients of individual variables estimated were found to be plausible while the signs of the coefficients indicated the expected relationships between the volume of beef trade and each of the individual issues. After comparing the two models it was found that the price variable exhibited statistically significant and plausible results, and did not affect the estimates of the other variables. A comparison with similar studies revealed that the model developed in this dissertation estimated similar results in some areas, and even more plausible results in others. When all of the statistical tests and validation criteria are taken into account, the gravity model developed in this dissertation was successful in validating and quantifying the factors that drive and influence international beef trade.