“New-Friend” versus “Old-Friend” Trade Liberalization Effects and their Importance for Developing Economies: Evidence for the Cattle/Beef Sector † Lota D. Tamini Senior Research Fellow Institut de recherche et de développement en agroenvironnement Adjunct professor, Department of Agricultural Economics and Consumer Studies, Laval University. Jean-Philippe Gervais Associate Professor, Department of Agricultural and Resource Economics, North Carolina State University Bruno Larue Canada Research Chair in Agri-food International Trade CRÉA and Department of Agricultural Economics and Consumer Studies, Laval University. Preliminary work This version, February 2009 Abstract: A gravity-based model is used to explain cattle and beef bilateral trade flows between forty-two countries. It considers vertical production linkages between the two sectors and appeals to the existence of fixed costs to explain foreign market penetration. The model parameters are estimated using a double-hurdle model with a multivariate sample selection procedure as the second hurdle. The parameter estimates are used to simulate probabilities of new trade flows (new-friend effect) and the increase in existing trade flows (old-friend effect) following reductions in import tariffs, export subsidies and domestic support. The results show that liberalization would generate few new cattle trade flows. However, adjustments in beef exports occur at both the extensive and intensive margins. Trade liberalization would create opportunities for developing economies to expand trade relationships although overall trade impacts are likely to be small unless countries push for aggressive liberalization plans. Keywords: Gravity model, heterogeneous firms and international trade, beef/cattle trade, trade partners, Doha Round. JEL Classification: Q17, F13 † Gervais is the contact author: 4336 Nelson Hall, Department of Agricultural and Resource Economics, North Carolina State University, Campus Box 8109, Raleigh, NC 27695. Email: JP_Gervais@ncsu.edu. Financial support from FQRSC and the Canada Research Chair program is gratefully acknowledged. We would like to thank Clement Yelou, Pascal Ghazalian and seminar participants at the University of Ottawa and participants at the 2007 IATRC meetings for their useful comments on an earlier draft of the paper. for their useful comments on an earlier draft of the paper. The usual caveat about remaining errors applies.