The Effect of Aggregation Bias: An NTB ‐modelling Analysis of Turkey's Agro‐food Trade with the EU

We explore how different data aggregation levels affect the gravity estimates of non‐tariff barriers ( NTB s) in the agro‐food sector, and we examine their related impacts on policy simulations of an expansion to the European Union ( EU ) that would include Turkey. We calculate two sets of ad valorem equivalents ( AVE s) of NTB s using the gravity approach to disaggregated and aggregated Central Product Classification data for 15 Global Trade Analysis Project ( GTAP ) agro‐food sectors. We find that the AVE s of NTB s vary substantially across products and that using aggregated data primarily results in greater effects of NTB s. In a second step, we incorporate the AVE s of NTB s into the GTAP model to evaluate Turkey's EU membership and conclude that aggregation bias has considerable effects on both the estimation of NTB s and the general equilibrium simulation results. Utilising different data aggregation levels leads to a great variability of trade costs of NTB s and, hence, to misleading trade and welfare effects.