Geographical indications in international markets: Policy, productivity, and trade

Abstract

Geographical indications (GIs) are an increasingly important feature of global agri-food markets and trade agreements, yet the economic literature lacks a structural open-economy model to analyze how GI policies influence exports, productivity, and welfare. To fill this gap, we develop a general equilibrium model of international trade that captures essential features of GI production and policies in both domestic and international markets. Production features include the craftsmanship of GI products and the collective culture of GI producers. GI policies focus on institutional frameworks and financial support for the collective management of GIs, as well as administrative protection (ex officio protection) of the GI label. The model accommodates cross-country asymmetries in the endowment of GI sectors, as well as in the implementation and strength of GI policies. Through simulation exercises, we analyze the impact of GI policies on production decisions, exporting behavior and market share allocation across the GI and non-GI sectors. We identify welfare-maximizing domestic and international GI policies and unveil a novel mechanism for welfare gains in international markets. This mechanism is driven by the interaction between domestic and international GI policies, leading to an inter-sectoral reallocation of market shares toward firms with higher productivity. Additionally, we formulate empirically testable hypotheses and provide policy recommendations. Our work provides a structural basis for future empirical research on the role of GI policies in shaping export behavior and productivity in global agri-food markets.