Endogenous protection in the Mexican corn and sorghum import market

Trade relations between the United States (U.S.) and Mexico are becoming increasingly important and interrelated ever since January 1, 1994 when Mexico, Canada, and the U.S. entered into the North American Free Trade Agreement (NAFTA). Mexico is a net importer of agricultural products and imports most of its corn and sorghum from the U.S. In 2001, corn exports increased to 12% and sorghum exports increased to 82% with respect to total U.S. world exports of corn and sorghum. In the case of corn, trade barriers exist that add a measure of uncertainty to the transaction between exporter and importer. Trade uncertainty reduces trade volume and prices in the origin market and increases the prices in the destination market.;The general economic objective of this study is to increase the understanding of the institutional aspects of trade. In general, these institutional aspects or administrative trade barrier (ATBs) have implications on the trade flow between countries. In doing so, a complete structural model is specified that links behavioral processes of economic agents in the political market with those in the private market.;The contribution of this study is the link that is formed between the political and private markets in international agricultural trade. The political market encompasses the institutional aspects of trade, since it is not nations that trade among themselves but individuals within each nation. These institutional or administrative barriers have implications on trade that have previously been dealt with as exogenous factors in the trade of agricultural commodities or not at all. The main idea of the current study is to emphasize that administrative barriers play an important role in the trade process.;The empirical results indicate that political market factors do play a statistically significant and economically important role in corn and sorghum import demand. Moreover, the study uncovered an implicit administrative trade barrier in the sorghum market that may be transferred through the corn market. Hence, direct impacts from import permits are not the only administrative trade barrier found in the import process. Welfare effects also show that increases in trade uncertainty reduce total welfare.