Wheat Import Demand in Mexico: Evidence of Quantile Cointegration

Abstract

The decline in the production of basic grains in Mexico has intensified since the 1990s, with wheat (Triticum) being no exception. This reduction was covered by the growth of Mexican imports. The objective of this research was to analyze the import demand function for wheat from 1994, the time of the initiation of the North American Free Trade Agreement (NAFTA). An autoregressive distributed lag (ARDL) model revealed the change in the conditional mean import demand using variations in its determinants, the Global Indicator of Economic Activity (IGAE for its Spanish acronym) and the real exchange rate, as proxy variables for income and relative prices, respectively. However, the conditional mean is insufficient in a context of increasing foreign purchases of wheat and outliers. Through a quantile extension of the ARDL model (with the acronym QARDL), we then found that the change in imports, and the relevance of the determinants, differed across import levels. In the short term, the upper quantiles of wheat imports responded mainly to their history and the exchange rate. Meanwhile, in the long term, the IGAE and the exchange rate influenced the lower quantiles of imports. We conclude that there was an asymmetric response in the conditional distribution of imports. In other words, this study provides evidence of short- and long-term location asymmetry in wheat imports under NAFTA. The research contributes to the econometric study of basic grain imports. For the first time, the QARDL model is used to understand the relationship between imports and their determinants, and the circumstances under which its use is recommended are indicated. Therefore, a new econometric method is used, avoiding the linearity of the ARDL model, and thus allowing a detailed and accurate estimation of the demand for imports. Consequently, the estimates and conclusions obtained will undoubtedly help economic agents to make more efficient decisions, from national and international investors to government agencies responsible for the promotion of Mexican agriculture.