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Abstract

Since processed foods are the fastest growing segment of U.S. agricultural exports, it is imperative to understand the underlying factors behind this growth. The overall objective of this research is to examine demand for processed foods by low and middle-income countries, seeking to assess demand determinants and potential import growth. In order to achieve this objective, we estimated a "modified gravity model" for U.S. exports of processed foods to 10 low and middle-income countries from 1980-2002, using both classical linear regression and fixed effects approaches. Empirical results from the classical model indicate that, as hypothesized, population, income, level of urbanization and an open trade regime have a positive effect on demand for processed foods by low and middle-income countries. As expected, exchange rates and distance have an inverse relationship with imports. Empirical results from the fixed-effects model are similar, with the exception of population. A cross-country comparative analysis of leading potential markets for U.S. processed food exports over the years 2003-2012 concluded that Mexico, China and Brazil, in that order, are likely to be the three largest future markets for U.S. processed foods among these 10 emerging countries.

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