Do Trade Agreements Reduce the Volatility of Agricultural Distortions?

The objective of this paper is to evaluate the extend to which trade agreements affect agricultural trade policy volatility. Using a new panel database compiled as part of the World Bank's Agricultural Distortions research project, we estimate the effect of regionalism (proxied in various ways) on the volatility of price distortions measured by the absolute value of their first differences, averaged, for each country and year, over all agricultural goods. Using an instrumental-variable approach to correct for the endogeneity of regional trade agreements, (RTAs), we find that participation in RTAs has a significantly negative effect on agricultural trade-policy volatility. We find that the WTO's agricultural agreement also contributed to reducing agricultural trade-policy volatility, in spite of the weak disciplines involved, but the effect is only weakly identified. Our results are robust to a variety of robustness checks and hold, in particular, for the Latin American sub-sample.