The impact of EU trade preferences on the extensive and intensive margins of agricultural and food products

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 effect of PTAs occurs mainly through the extensive – number of exported products – or the intensive – volume of existing products – margins. A direct measure of the extensive margin based on a theoretically-founded decomposition of trade into the two margins is 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 recently been shown to raise new problems in the most common gravity econometric approaches. Main results show that the EU PTAs positively affect agricultural extensive margins, especially through other than tariff impacts linked with the PTA, while in the food industry the results are more sensitive to the estimator used. As far as the intensive margin is concerned, the PTA effect is only driven by the role of tariffs, while other effects of the PTAs do not exert any relevant impact on agricultural and food products