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Nicola Cantore , Maurizio Canavari , and Erika Pignatti (2008) Organic certification systems and international trading of agricultural products in gravity models
Paper,
American Agricultural Economics Association Annual Meeting, Orlando, FL, July 27–29, 2008.
Document:
Cantore_et_al.pdf
Abstract
Recent literature about gravity models points out the importance of institutional frictions in the international market of agricultural products beyond the traditional economics variables as transport costs reducing the mass of trade in bilateral relationships. In particular, previous
contributions stress that harmonization of food standards could decrease transaction costs in trading relationships by stimulating international market.
In a previous work we hypothesized that the acknowledgment of equivalence in organic standards may represent a reliable signal of affinity in bilateral relationships which may be useful to identify areas in which transaction costs for both conventional and organic standards are lower.
This article represents a step forward. We test the assumption that the acknowledgment of equivalence to identify low transaction costs areas is a restrictive one and that the simple presence of implemented rules for organic standards could be a valid signal to find bilateral business exchanges characterized by lower transaction costs and trust relationships.
Therefore, in our analysis we test if countries setting specific rules for
organic standards are more “affine” in trading relationships because of a low common cultural, law and political distance but also if differences in organic standards themselves can be useful to differentiate the level of affinity among regions. Interesting insights for policy makers about the identification of relevant variables for international business arise from an econometric analysis.
Keywords: Gravity models, organic standards, transaction costs, international market, agricultural trade, food products.
Relevance to our study:
That study is relevant to the project because analyses the influence of presence of organic standards on bilateral trading relationships between countries.
The conclusions of the study are that the presence of organic standards is a signal of cultural affinity and among the countries having an organic standard, it’s more likely to establish fruitful trading, counting on a lower level of frictions.
Though countries showing organic standards are characterized by lower transaction costs and higher mass of trading between them, the extent to which transaction costs decrease also depend on the level of “similarity” between international organic standards. In other words, our hypothesis is that countries providing organic standards are more “affine” in bilateral trading rather than countries that are late in setting regulations for organic food. Among countries that regulated the organic sector, however, the most “affine” ones are the countries in which standards are more similar.
The existence of rules for organic products rather than equivalence can be interpreted as signal of higher affinity, leading to wider commercial exchanges. Moreover, among those countries providing standards for organic products and which are generally more inclined to set up bilateral trading relationships, the most intense exchanges are developed by those countries with “similar” certification systems.
Relevancy on a scale from 1 to 5 = 4
Review status: Finished
Review started on 2009–01–21
Reviewed by Samanta Rosi Bellière?
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