Growing olive oil export and intra-industry trade in Mediterranean countries: Application of gravity model

While olive oil production is spreading to the non-traditional producer countries, including the US, Australia, and New Zealand, Mediterranean countries are still major producers and exporters. However, little is known about their olive oil exports simultaneously growing in tandem with their large volume of imports. This paper examines the factors that affect olive oil exports and imports in Mediterranean countries. Using balanced panel data of olive oil trade in Mediterranean countries from 1998 to 2016, we estimated the commodity-specific gravity model. Results suggest that an increase in the overall bilateral size of trading partners positively affects the flow of olive oil trade. The difference in factor endowments has a negative impact on exports, whereas its effect is positive on their imports. The members of the European Union (EU) are competitive in olive oil export, and the volume of its import is large among the EU countries whose per capita income and demand properties are similar. These results support Linder's hypothesis rather than the predictions from the traditional Heckscher-Ohlin trade theory. The simultaneous export and import of olive oil in Mediterranean countries implies the relevance of a growing intra-industry trade rather than a country's specialization following its comparative advantage.