The Applicability And Application Of Smooth Adjustment Hypothesis In Chinese Agricultural Trade

According to ‘Smooth Adjustment Hypothesis’, under the background of tradeliberalization, more production factors will flow within the industry while the level ofintra-industry trade is increasing, leading to the adjustment cost caused by production changereduced. With more appearance of intra-industry trade,‘Smooth Adjustment Hypothesis’ hasbeen taken seriously. Agriculture is the basic industry in China, and the trade value ofagricultural products grows rapidly since Chinese accession to the WTO, the resultingadjustment cost will directly affect Chinese agricultural production and economic stability.‘Smooth Adjustment Hypothesis’ links intra-industry trade with adjustment cost and makesthe measurement of adjustment cost possible.The current literature about ‘Smooth Adjustment Hypothesis’ are added in this paper. Bytheoretically demonstrating the applicability of ‘Smooth Adjustment Hypothesis’ inagricultural trade, this paper makes an empirical analysis with parameter estimation andnon-parameter estimation methods. The result of parameter estimation method suggests that itneeds three years when the change of intra-industry trade has a significant negativerelationship with adjustment cost, and the conclusion of non-parameter estimation methodfurther validates that ‘Smooth Adjustment Hypothesis’ is applicable to Chinese agriculturaltrade.Based on the conclusion, from the perspective of intra-industry trade, the paper studiesthe adjustment cost of specific agricultural products trade by measuring trade adjustmentspace, A index and S index. The result suggests that after accession to the WTO, part ofagricultural products shift from intra-industry trade to the inter-industry trade, the overallagricultural products continuously face contractionary adjustment pressure brought by thequick growth of imports, and adjustment cost gradually increases while the level ofintra-industry trade is decreasing.At last, to reduce the adjustment cost of Chinese agricultural trade, the paper advisesproposals from the three aspects, implementing the strategy of differentiation, rising domestic per capita income levels, and coordinating the development of intra-industry trade andinter-industry trade.