Equilibrium location of vertically linked industries under free trade: Case studies of orange juice and tomato paste in the Western Hemisphere.

摘要

Analysis of agricultural trade has typically treated raw commodities in isolation from their processed products. As industrialization of agriculture continues, models that incorporate multiple-stage processing provide more realistic analyses of the trade liberalization effects. Frequently, tariff structures target value-added products with higher tariff rates than the raw good utilized in processing. With trade liberalization, trade flows might change substantially in a vertically inter-related production system.; A model developed by Venables (1993) utilizes a two-stage system of production under varying levels of openness to trade. Using Venables' model, this dissertation analyzes effects of free trade in the Western Hemisphere for the case of the orange juice and tomato paste industries. Breaking production into two stages, the model assumes that both stages are imperfectly competitive and subject to increasing returns. The approach is location-oriented, and analyzes the final location of both raw and processed production given trade liberalization. Demand and supply linkages exist to incorporate the role of consumers and the connection between the two stages of production.; Trade liberalization is represented as a reduction in transportation costs. High transportation costs encourage production in multiple locations. Lowering transportation costs creates an agglomerative effect. Under current conditions, orange juice and tomato paste production in the Western Hemisphere are exemplified by the first scenario, indicating trade costs could be high enough to prevent agglomeration.; Using representative firm data, parameter values are established for the current scenario. With these parameter values, transportation costs are decreased to represent the elimination of trade barriers. A system of equations is then solved to yield information on firm and grower locations given free trade.; Generally, the results indicate that for both industries production will be skewed toward the US locations--Florida for orange juice, California for tomato paste--as tariffs are reduced in the Western Hemisphere. While the results might seem counterintuitive given production cost comparisons, the results emphasize the importance of the consumer base in the model, as well as the desire for multiple varieties of the same good. Agglomeration benefits are maximized by locating in the country where the vast majority of consumption takes place.