The Impact of EU trade preferences on the extensive and intensive agricultural and food product margins

In this paper we study the trade creation effects of the EU preferential trade agreements (PTAs) in the agriculture and food sectors for a large sample of developing countries in the period 1990-2006. We build upon the existing literature on trade with heterogeneous firms, by investigating the extent to which the effects of PTAs occurs mainly through the extensive – number of exported products – or the intensive – volume of existing products – margins. A direct measure of export diversification based on the theoretically-founded decomposition of trade into the two margins is here used. Empirically, we use a gravity framework in a panel data setting, and different estimators to deal with the issues of zero trade flows and of the presence of an upper bound in the dependent variable, which has been recently shown to raise new problems in the most common gravity econometric approaches. Main results show that the EU PTAs positively affect the agricultural extensive margins, especially through other than tariff provisions linked with the PTA, while in the food industry results are more sensitive to the estimator used. As far as concern the intensive margin, the PTAs effect is only driven by the role of tariff, while other provisions of the PTAs do not exert any relevant impact in both agricultural and food products