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Abstract

Tomato trade between the U.S. and Mexico has grown significantly during the past decade. Although the tariff reductions accorded under NAFTA may explain part of his increase, there are other supply and demand factors that affect trade flows. This study develops a U.S.-Mexico tomato trade model, with special focus on the interdependence between trading costs and the volume of Mexican imports. As expected, the exchange rate is a significant determinant of trading costs, but the level of tariffs was insignificant in both the trading and tomato supply equations. The shipping point price level and volume of imports also appear to affect these costs. For the import supply and demand models, there appears to be a significant share of imports that rely on previous levels of imports, rather than the expected economic factors (prices, income, and producer price index). We conclude that the structure and performance of the tomato trading market is changing, and may be more influential than tariff reductions in explaining increased trade flows.

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