Download Wine export, macroeconomic policy, and production relationships

XXIV EuAWE 2017
PS-VS
Bologna Conference
Wine export, macroeconomic policy, and production
relationships: evidence of the EU region
Niaz BASHIRI-BEHMIRI, Leonida Amaral TOMAS CORREIA,
Patricia Sofia FIGUEIREDO MARTINS, João Fernandes REBELLO
Department of Economics, Sociology and Management (DESG) and CETRAD,
University of Trás-os-Montes and Alto Douro (UTAD), 5000-660 Vila Real, Portugal
[email protected]
Introduction
There are few studies concerning about the determinants of wine
export, among them for instance, using data from Greek wine exporters,
Karelakis et al. (2008) find that the main factors influencing wine exports
are competitive export advantages (firm export competence, knowledge
related to export channels, product adaptation, competitive price, and
distributor support), environmental factors (economic hostility and price
competition), and the conditions necessary for the development of an export
channel (information exchange and cooperation); Gwynne (2006) highlights
the importance of
relationship between export-orientation and the
concentration of exports in agro-industry products; Fischer and Gil-Alana
(2009) suggest that increased import levels in importin wine countries tend
to be associated with a more diverse basket of imports, and finally Mourão
and Martinho (2016) reveals that the value of Portuguese wine exports has a
positive relationship with the size of the government in each destination
country, the rural population of the destination country, and real GDP per
capita, among other variables. Regarding investigating the macroeconomic
factor on wine export, Anderson and Wittwer (2012) applying a partial
equilibrium model, examine the impact of changes in real exchange rate
during the global financial crisis on Australian wine market, as well as
bilateral trades in five wine quality categories under different scenarios for
the future.
Therefore, there is a lack in the literature about investigating the effect
of macroeconomic policy on wine export. In this study, we aim to examine:
a) the effect of macroeconomic policy on wine export and production and b)
the interrelation between wine export and production. Our study is
concentrated on the main EU wine producers, including Italy, France, Spain,
Portugal, Germany and Austria, during the time period from 2000 to 2015.
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XXIV EuAWE 2017
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Bologna Conference
Theoretical background
Previous empirical studies suggest that the macroeconomic stability of
a country might
directly impact on its volume of exports and economic growth rate. In
this study we apply the Cobb-Douglas production function to model wine
export and production, which is described below. We suppose that, wine
production and export equations are based on:
Y = A*f (K, H, L)
(1)
X = g (Y, K, H, L, P, M)
(2)
In which Y is total wine output, A is technology, K is physical capital,
H is human capital, L is labor, P is price competitiveness, and M is a set of
macroeconomic policy indicators. Using a Cobb-Douglas functional form
and following the contributions of Solow (1956), and Mankiw et al. (1992),
we model wine output as:
𝛽 𝛾
𝛼
𝑦𝑖,𝑡 =𝐴𝑖,𝑡 𝐾𝑖,𝑡
𝐻𝑖,𝑡 𝐿𝑖,𝑡
(3)
for country i during period t. 𝐴𝑖,𝑡 depends on the primary level of
technology in a country, macroeconomic policy, and the rate of
technological progress. We follow Mankiw et al. (1992) in which:
𝐴𝑖,𝑡 = 𝐴0 𝑒 𝑔𝑖,𝑡 𝑀𝑖,𝑡
(4)
𝑔𝑖,𝑡 =η+θ𝑋𝑖,𝑡
(5)
In which g denotes technological progress and M represents the
macroeconomic policies. Technological progress, g, depends on the level of
exports, so that:
In which X is wine export. The level of exports is developed in the
same way.
Model specification
Therefore, we model the wine export and production as the following
equations:
𝑥𝑖,𝑡 = 𝜂𝑖1 + 𝜇𝑡1 + 𝛼1 𝑘𝑖,𝑡−1 + 𝛽1 ℎ𝑖,𝑡−1 + 𝛾1 𝑙𝑖,𝑡−1 + 𝛿1 𝑡𝑖,𝑡−1 +
𝜑1 𝑟𝑖,𝑡−1 + 𝑘1 𝑚𝑖,𝑡−1 + 𝜃1 𝑦𝑖,𝑡−1 + 𝜀𝑖𝑡1
𝑦𝑖,𝑡 = 𝜂𝑖2 + 𝜇𝑡2 + 𝛼2 𝑘𝑖,𝑡−1 + 𝛽2 ℎ𝑖,𝑡−1 + 𝛾2 𝑙𝑖,𝑡−1 + 𝛿2 𝑡𝑖,𝑡−1 +
𝜑2 𝑟𝑖,𝑡−1 + 𝑘2 𝑚𝑖,𝑡−1 + 𝜃2 𝑥𝑖,𝑡−1 + 𝜀𝑖𝑡2
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(6)
(7)
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XXIV EuAWE 2017
PS-VS
Bologna Conference
in which x is a vector of export for six EU countries, namely Italy,
France, Spain, Portugal, Germany and Austria, y is a vector of production
for six EU countries, k is physical capital investment, h is human capital
investment, l is the growth rate of labor, and m is a vector of the
macroeconomic policy indicators. We include five macroeconomic policy
variables, chosen on the basis of data availability and their application in
previous studies, namely inflation, the ratio of government debt to GDP,
government consumption expenditure, money supply and real interest rate.
Moreover, we control for the openness of a country and the stability and the
exchange rate, including the tariff rate, t, and the volatility of the real
effective exchange rate index, r, in the export equation. i represents each
country, over time period t, and η and μ control for constants and time
effects, respectively.
Methodology and expected results
In this study, we estimate the wine export and production equations
within a system framework, using a two-step system-dynamic GMM
method. It is recommended that system-dynamic GMM is the best technique
for data having time series less than 20, (Judson & Owen 1999), which is
the case of our study. Following, we describe the expected results.
We expect that inflation might be negatively associated with the level
of wine exports and productions of EU countries, reason why set inflation
targets, and making inflation is a sufficient indicator of macroeconomic
policy.
We expect that the government debt to GDP shows a mixture of
effects on wine exports and productions. A country that is highly indebted
may unintentionally reduce investment due to a higher interest rates or
increased tax liabilities expectations in the future. Therefore, it is not
expected that export sector would expand. Otherwise, if a country is
indebted because investing large amount of money in infrastructure or
human capital, then wine production and exports are expected to increase.
The same explanation is applicable for government consumption
expenditures. If a significant amount of spending is resulted from
investment in infrastructure or stimulus for the economy, wine production
and exports might increase. However, if high government expenditures are a
sign of instability or weakness in the economy, this may negatively affect
consumer confidence, leading to a decrease in wine exports and productions.
An increase in the money supply, may show more effect in the
economy, in this case wine exports and productions will likely increase.
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XXIV EuAWE 2017
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Bologna Conference
However, if an increase in money supply is resulted from economic
uncertainty and people may just be holding more money, rather than using it
to expand output, then there may be a negative effect from more money
supply to wine exports and productions.
Finally, a low real interest rate is an incentive for businesses to open
or expand their operations, which may subsequently increase wine
productions and exports, although high interest rates depress investment and
business expansion, this may discourage wine productions and exports.
References
1. Anderson, K., Wittwer, G., 2012. How much have exchange rate
movements reduced competitiveness of Australian wines? Wine
Economics Research Centre, Wine Policy Brief No. 6.
2. Fischer C., Gil-Alana L.A., 2009. The nature of the relationship
between international tourism and international trade: the case of
German imports of Spanish wine. Applied Economics, 41,
13451359.
3. Gwynne R.N., 2006. Export-orientation and enterprise development:
a comparison of New Zealand and Chilean wine production.
Tijdschrift voor Economische en Sociale Geografie, 97(2), 138-156.
4. Judson, R.A., Owen, A.L., 1999- Estimating dynamic panel data
models: a guide for macroeconomists. Economics Letters 65, 9-15.
5. Karelakis C., Mattas K., Chryssochoidis G., 2008. Greek wine firms:
determinants of export performance. Agribusiness, 24(2), 275-297.
6. Mankiw, G., Romer, D. & Weil, D.N., 1992. A contribution to the
empirics of economic growth. Quarterly Journal of Economics, 107,
407-437.
7. Mourão, P.R., Martinho, V.D., 2016. Scoring the efficiency of
Portuguese wine exports – an analysis recurring to Stochastic
Frontier Models. Ciência e Técnica Vitivinícola, 31(1), 1-13.
8. Solow, R., 1956. A contribution to the theory of economic growth.
Quarterly Journal of Economics, 70, 65-94.
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