How does Trade Impact Agricultural Productivity?

Abstract:

Agricultural production has faced increased demands over the last half centuryfrom an expanding economy and population. We live in a globalized world, in whichagriculture is deeply intertwined in international markets and trade. In this paper,we address the overarching research question: \What is the impact of trade onagricultural productivity?". To this end, we present a comprehensive statistical andeconometric analysis on the relationship between international trade and agriculturalproduction. We use national-scale data on crop yield, area harvested, production,and trade for the last half century (1961-2016) from the Food and Agricultural Organizationof the United Nations. We introduce novel weighting and decompositionanalyses to explore the relationship between trade and crop productivity. To determinethe causal impact of trade on agriculture we implement instrumental variable(IV) econometric methods. We nd that trade has led to an increase in global agriculturalproductivity over time (e.g. through increased productivity, the intensivemargin). Global productivity gains have accrued primarily through the participationof more countries in global trade (e.g. expanding the area of contribution, theextensive margin). Additionally, we nd that trade has enabled global crop consumptionto increase. These ndings indicate that trade openness leads to greaterproductivity in agriculture in general. This work highlights that trade can help toachieve productivity gains in agriculture and potentially help the world to addressremaining yield gaps.