THESIS POTENTIAL IMPACTS OF HARD INFRASTRUCTURE DEVELOPMENT ON AGRICULTURAL TRADE Submitted by Aaisha Al-Maamari Department of Agricultural and Resource Economics In partial fulfillment of the requirements For the Degree of Master of Science Colorado State University Fort Collins, Colorado Summer 2017 Master’s Committee: Advisor: Amanda Countryman Dawn Thilmany Anita Pena Copyright by Aaisha Almaamari 2017 All Rights Reserved ABSTRACT POTENTIAL IMPACTS OF HARD INFRASTRUCTURE DEVELOPMENT ON AGRICULTURAL TRADE The development of hard infrastructure has the potential to enhance agricultural production and international agricultural trade. Good quality physical networks could reduce the transport costs for producers and suppliers, thereby increasing the volume of agricultural bilateral trade. For most countries, tariff rates, transport costs, geographic drawbacks, and other nontariff barriers are considered to be the most significant potential impediments to trade. This study estimates the role of hard infrastructure on agricultural bilateral trade among North and Latin American countries, as one determinant of transport costs. By using panel data for agricultural imports from 2006 to 2014, we measure the potential impact of the quality of overall hard infrastructure as well as specific modes of transport networks such as roads, railroads, ports and airports infrastructure on the prevalence and patterns of agricultural trade. A modified gravity model of trade has been used to measure the impact of different trade barriers on the trade of food, animal, vegetable and aggregated agricultural products. Results show that the distance between countries and hard infrastructure are statistically significant and play an important role in determining transport costs as well as the variation in agricultural bilateral trade. For both aggregated and disaggregated agricultural trade, the estimated coefficients show that exporters’ infrastructure has a larger impact on trade than importers’ infrastructure. Results show that a 10 percent improvement in the quality of an exporters’ hard infrastructure may ii increase total agricultural import volume by 8.6 percent, while a 10 percent improvement in importers’ hard infrastructure may increase aggregated agricultural imports by 6.0 percent. iii ACKNOWLEDGMENTS First, I would like to thank my friends for their help and support. Also, I would give a great thank you to my Advisor, Dr. Amanda Countryman and additional members of my Masters' Thesis committee, Dr. Dawn Thilmany and Dr. Anita Pena for their help, advice and supervision. Finally, I deeply thank my parents for their patience, support, trust and encouragement during the period of my study and work on this research project. iv TABLE OF CONTENTS ABSTRACT .......................................................................................................................................... ii ACKNOWLEDGMENTS .................................................................................................................. iv LIST OF TABLES ............................................................................................................................. vii LIST OF FIGURES ..........................................................................................................................viii CHAPTER 1/INTRODUCTION ........................................................................................................ 1 1.1 Agricultural trade and transport costs....................................................................................... 2 1.2 Objectives ................................................................................................................................. 5 1.3 Agricultural trade in North and Latin America ...................................................................... 6 1.4 Quality of physical Infrastructure ........................................................................................... 8 1.5 High and low quality hard infrastructure ................................................................................ 9 1.5.1 Roads ................................................................................................................................ 9 1.5.2 Railroads ......................................................................................................................... 10 1.5.3 Ports ................................................................................................................................ 11 1.5.4 Airports ........................................................................................................................... 12 1.5.5 Hard infrastructure in Brazil ......................................................................................... 12 1.5.6 Hard infrastructure in United States ............................................................................. 13 CHAPTER 2/LITERATURE REVIEW .......................................................................................... 18 2.1 Transport costs as barrier to international trade .......................................................................... 18 2.2 The role of infrastructure in agricultural development, economic growth and international trade .................................................................................................................................................... 19 CHAPTER 3/THEORETICAL WELFARE EFFECTS OF INFRASTRUCTURE DEVELOPMENT ............................................................................................................................... 24 CHAPTER 4/METHODOLOGY ..................................................................................................... 29 4.1 Empirical model: Specification of the gravity model .......................................................... 29 4.1.1 General gravity model of trade ...................................................................................... 29 4.1.2 Modified gravity model of trade ................................................................................... 30 4.2 Data .......................................................................................................................................... 33 4.2.1 Data sources ................................................................................................................... 33 v 4.2.2 Estimation of missing data ............................................................................................ 36 4.2.3 Summary of data ............................................................................................................ 36 4.3 Estimating gravity model of trade ........................................................................................... 40 4.3.1 Tobit estimation ............................................................................................................. 42 4.3.2 Poisson Pseudo-Maximum Likelihood estimator ........................................................ 46 CHAPTER 5/EMPIRICAL RESULTS AND DISCUSSION ........................................................ 48 5.1 Bilateral trade of aggregated agricultural products ............................................................... 48 5.2 Bilateral trade of food, animal and vegetable products ........................................................ 53 5.3 Poisson Pseudo Maximum Likelihood estimates ................................................................. 59 CHAPTER 6/SUMMARY AND CONCLUSIONS ....................................................................... 73 REFERENCES .................................................................................................................................. 82 APPENDIX ........................................................................................................................................ 86 vi LIST OF TABLES Table 1: Trade performance in North and Latin American countries in 2000 and 2014, (% of total imports and exports). .................................................................................................................... 15 Table 2: Comparison of hard infrastructure indices among selected North and Latin American countries in 2014 ........................................................................................................................... 39 Table 3: Hard infrastructure impact on agricultural bilateral trade, Tobit estimates ............... 63 Table 4: Hard infrastructure impact on food bilateral trade, Tobit estimates ........................... 64 Table 5: Hard infrastructure impact on animal bilateral trade, Tobit estimates ....................... 65 Table 6: Hard infrastructure impact on vegetable bilateral trade, Tobit estimates ................... 66 Table 7: Tobit estimates for model 1, overall infrastructure...................................................... 67 Table 8: Hard infrastructure impact on agricultural bilateral trade, PPML estimates.............. 68 Table 9: Hard infrastructure impact on food bilateral trade, PPML estimates ......................... 69 Table 10: Hard infrastructure impact on animal bilateral trade, PPML estimates ................... 70 Table 11: Hard infrastructure impact on vegetable bilateral trade, PPML estimates ............... 71 Table 12: PPML estimates for model 1, overall infrastructure .................................................. 72 Table 13: Sample countries .........................................................................................................