The effect of agricultural trade openness on fruit prices in Korea

Abstract

This study investigates the effect of agricultural trade openness on fruit prices in South Korea considering the quality improvement originating from agricultural trade policies by examining the U-shaped relationship between agricultural openness and fruit prices. Utilising the autoregressive distributed lag (ARDL) model and annual data from the period 1988–2019, we find that while an increase of agricultural openness leads to a reduction in fruit prices, an increase of square of agricultural openness leads to a rise of fruit prices in the long-run. In other words, our hypothesis of a U-shaped relationship between agricultural openness and fruit prices is satisfied. This finding implies that determining the optimal amount of high-quality fruit is important for fruit farmers' income. Additionally, Korea should divide the fruit consumer price index (CPI) into high-quality and traditional fruit to solve the problem of an increase in fruit CPI without an actual increase in the price of traditional fruit.