Determinants of Biofuel Trade and Its Political Influence

Abstract

The boom of biofuels, in particular bioethanol for transportation purposes, has created a unique opportunity for the Latin American (LA) rural sector. On the commercial aspect, this paper presents pooled data regressions for the global trade of ethanol based on the research of Salamon, Von Ledebur and Klepper (2006). The results indicate that global bilateral trade flows of ethanol can be explained by a set of variables like oil prices, energy and size of the economy and in some cases the LA integration variables according to the trade flow (import/export). On the public policy perspective, the focus of this paper was on the limits of government intervention to develop the biofuel industry through two case studies: Brazil and Colombia. Their different backgrounds evidence how the development of bioethanol industry is possible either for a medium country that is just starting such as Colombia, as well as for more experienced countries like Brazil. In terms of the limits of government intervention, there is no clear classification of biofuels under the current trading system within the WTO regime. For all this, the contribution of this article is not only constrained to the analysis of successful cases in the biofuel industry but it also provides a new powerful tool for governments to trace their own path though the new and controversial world of biofuel policy.