Trade disruption and commodity-program payments: a panel GARCH model

Abstract

Trade disruption has reduced the economic gains countries enjoy from great trade relationships. This disruption stems from trade wars, exchange rate volatility, and rare events. However, the gravity model, mainly used to investigate this problem, is plagued with heteroscedasticity, omitted variables, and zero trade flow. This makes it difficult for farmers, policymakers, and investors to predict how the international market behaves. The study assesses how commodity-program payments help mitigate shocks from trade disruptions using a panel GARCH model. Hence, the study examines the source of trade disruption, the intensity of trade disruption on soybean and corn export, the risk associated with trade disruption, and how effectively existing farm payments have mitigated the risk. The results indicated that the price loss coverage effectively mitigates the risk of trade disruption for soybean and corn.