Agri-food trade channel and the ASEAN macroeconomic impacts from output and price shocks

This paper examines the diffusion of external (output and price) shocks to the Association of Southeast Asian Nations (ASEAN) through the agri-food trade channel for the 1990Q1 to 2020Q4 period. For that purpose, the study develops a Global Vector Autoregressive (GVAR) model to simulate the region's economic resilience (output, inflation, interest rate and exchange rate) from various external shocks. We find that the agri-food channel is relevant in the shock propagation to ASEAN. There are more pronounced output effects on ASEAN from global output shocks relative to regional output shocks channeled through agri-food trade. However, the macroeconomic responses of ASEAN to global price shocks are not uniform due to the different consumption intensities of oil and raw materials, with negative and positive output effects from oil price shocks and raw material price shocks, respectively. Overall, ASEAN is more vulnerable to oil price shocks than to raw material price shocks. Our results emphasize that the distributional impacts of the agri-food trade channel and the ASEAN region's ability to mitigate the effects of global shocks depend on the degree of trade linkages and the region's capacity to counter the demand contractions and supply disruptions. The findings suggest that ASEAN should be cautious about the global shocks penetrating through the agri-food channel to address its macroeconomic vulnerabilities and better manage its economic resiliency.