Decomposing the Impact of GMO Regulation on Bilateral Trade: An Application to Corn Trade
M. Amine Hedoui, John C. Beghin
November 2022 [22-WP 638]
Hedoui, M.A. and J.C. Beghin. 2022. "Decomposing the Impact of GMO Regulation on Bilateral Trade: An Application to Corn Trade." Working paper 22-WP 638. Center for Agricultural and Rural Development, Iowa State University.
The stringency of GMO regulation affects trade of agricultural products among countries. On that account, our investigation attempts to shed the light on the complexity of the impact of genetically modified organisms (GMO) regulations among countries on bilateral trade with a focus on GMO approvals. We develop a framework extending Xiong and Beghin (2014) and their decomposition of export supply and imports demand effects. Our approach encompasses the supplemental effect of GMO regulation laxity in production on the exporter’s productivity. It decomposes three effects that impact bilateral trade flows between trade partners: productivity in the source country, sorting cost from bilateral dissimilarity in regulations, and stringency impact on import demand. We estimate the model using a panel dataset of corn trade and two econometric approaches (PPML, Heckman sample-selection). We find that GMO laxity in production of exporters has the most prominent and robust effect of enhancing bilateral trade of corn. The effect of GMO laxity in demand appears to be smaller than the export booster effect of GMO adoption. Finally, bilateral dissimilarity in regulations does not appear to matter, once we account for the impact of GMO in production of the exporters and laxity in demand differentiated for importer and exporters. Hence, GMO approval regulations have dominating multilateral effects rather than bilateral ones.