TESTING DYNAMIC MODELS OF THE FARM FIRM

In this paper two models of dynamic firm behavior are fitted to a data set developed from business records of Indiana dairy farms. The parametric restrictions implied by a cost-of-adjustment model are rejected. A less restrictive, disequilibrium model is accepted; this is a model of partial and interrelated adjustment among inputs and outputs. The results suggest that adjustment in quasi-fixed inputs is slow affecting the adjustment in variable inputs and outputs.Agricultural Finance, Livestock Production/Industries,

World Agriculture and Climate Change: Economic Adaptations

Recent studies suggest that possible global increases in temperature and changes in precipitation patterns during the next century will affect world agriculture. Because of the ability of farmers to adapt , however, these changes are not likely to imperil world food production. Nevertheless, world production of all goods and services may decline, if climate change is severe enough or if cropland expansion is hindered. Impacts are not equally distributed around the world.climate change, world agriculture, Environmental Economics and Policy,

Designing “optimal” sanctions on Russian imports

Restricting Russian imports is an important instrument in Allies’ sanction toolbox. Rather than arbitrarily choosing the set of targeted imported products and the level of import tariff increasesm (as is typically done in the literature), we follow the recent contributions on “optimal sanction” strategies. Using GTAP, we endogenize the scope of sectors targeted, the magnitude of tariff increases, and the disbursement of tariff revenues in the context of a computable general equilibrium (CGE) model. This allows us to identify the set of Allied import restrictions that best achieves the Allies’ objectives of inflicting the highest economic pain on Russia while at the same time keeping self-harm to Allies as low and as equitably distributed as possible. With regard to scope we find that, instead of targeting Russian imports across the board, the Allies fare better when limiting their import sanctions to products from the eight most-imported Russian sectors. Regarding optimal tariff levels, we find that, rather than imposing all-out import bans, tariff increases in the range of 20 to 25 percentage points best achieve the Allies’ objectives. Finally, the Allied coalition could benefit from a burden-sharing arrangement in which proceeds generated from the additional tariff revenues are redistributed among Allies, and other cash transfers are allowed for. Doing so would result in a more equitable distribution of economic losses among Allied countries – at hardly any additional “cost” to the coalition (in terms of extra losses to Allies or reduced lossesto Russia). Such an arrangement could significantly strengthen cohesion, resilience, and longevity of the Allied coalition, and thus ought to become a component of an optimal sanction strategy. As an alternative to redistributing tariff revenue among coalition countries, Allies could consider using those funds towards supporting Ukraine directly. Doing so would involve a small sacrifice by Allies and would scarcely compromise the effectiveness of Allied sanctions. However, it could greatly helpmitigating the human catastrophe unfolding in and around Ukraine

Estimating the economic effects of sanctions on Russia : an allied trade embargo

1 document, 1 datasetThis brief aims to contribute to the ongoing discussion on the use of sanctions as a coercive tool of international policymaking, focusing on the economic effects of the sanctions on the Russian Federation (“Russia”) following its invasion of Ukraine. Using computable general equilibrium modeling, we explore the short- to medium-term economic effects of a possible trade embargo by Allied countries imposed on Russia and Belarus. We consider the Allied trade embargo as a set of comprehensive trade sanctions that includes (i) import-related measures, (ii) export-related measures, (iii) FDI-related measures, and, as a spill-over effect, (iv) increased trade costs between Russia and non-Allies. We find that Russia would sustain sizable losses of upwards of 14% of real GDP from an Allied trade embargo, even in the short run. The largest contribution to Russia’s economic pain results from the exit of Allied foreign direct investment (FDI). Belarus is only marginally affected by an Allied trade embargo. Allied economies are unevenly affected by the sanctions, with real GDP losses between 0.1% and 1.6%. Non-allied economies benefit from some trade diversion, but experience even larger losses from the increased costs of trading and doing business with Russia. For example, real GDP losses to China, India, and Turkey are 0.02%, 0.04%, and 0.13%, respectively. China joining the group of Allies results in greater economic losses for Russia; Allied economies and China would be adversely affected by this move. Finally, Russia would suffer significantly higher losses if it were the party enacting countersanctions, rather than resigning itself to being a sanction target

AGRICULTURAL POLICY REFORM IN THE WTO: THE ROAD AHEAD

Agricultural trade barriers and producer subsidies inflict real costs, both on the countries that use these policies and on their trade partners. Trade barriers lower demand for trade partners' products, domestic subsidies can induce an oversupply of agricultural products which depresses world prices, and export subsidies create increased competition for producers in other countries. Eliminating global agricultural policy distortions would result in an annual world welfare gain of $56 billion. High protection for agricultural commodities in the form of tariffs continues to be the major factor restricting world trade. In 2000, World Trade Organization (WTO) members continued global negotiations on agricultural policy reform. To help policymakers and others realize what is at stake in the global agricultural negotiations, this report quantifies the costs of global agricultural distortions and the potential benefits of their full elimination. It also analyzes the effects on U.S. and world agriculture if only partial reform is achieved in liberalizing tariffs, tariff-rate quotas (limits on imported goods), domestic support, and export subsidies.Agricultural and Food Policy, International Relations/Trade,

Potential productivity effects of U.S. trade agreements

This work analyzes the productivity effects of US trade agreements implemented during 1984-2016. After reviewing the literature of the effects of trade on productivity, we discuss the mechanisms that may come into play when there are trade changes. In a general view of the potential effects of trade on productivity, trade may result in increased productivity because firms take actions to cope with competition (Aghion et al., 2004). In Melitz (2003), strong competition and selection caused by trade liberalization result in less productive firms exiting the market and a reallocation of market shares to more productive firms. Trade agreements directly affect tariffs and nontariff measures (NTMs). We rely on published estimates of the direct effects of US trade agreements on tariffs and NTMs. The U.S. International Trade Commission (2016) estimated the total tariff equivalents of the barriers to trade that were removed by U.S. trade agreements. The USITC econometric analysis was based on the Baier and Bergstrand (2007) gravity model of trade. This analysis is based on the GTAP and GTAP-HET frameworks. Simulations with the GTAP model (Hertel, 1997, and Corong et al., 2017) provide an analysis of U.S. trade agreements which abstracts from productivity effects. The GTAP analysis will provide a reference point to which the GTAP-HET analysis will be compared. The GTAP-HET framework (Akgul et al., 2016) introduces the firm heterogeneity theory of Melitz in the GTAP model

Potential productivity effects of U.S. trade agreements

This work analyzes the productivity effects of US trade agreements implemented during 1984-2016. After reviewing the literature of the effects of trade on productivity, we discuss the mechanisms that may come into play when there are trade changes. In a general view of the potential effects of trade on productivity, trade may result in increased productivity because firms take actions to cope with competition (Aghion et al., 2004). In Melitz (2003), strong competition and selection caused by trade liberalization result in less productive firms exiting the market and a reallocation of market shares to more productive firms. Trade agreements directly affect tariffs and nontariff measures (NTMs). We rely on published estimates of the direct effects of US trade agreements on tariffs and NTMs. The U.S. International Trade Commission (2016) estimated the total tariff equivalents of the barriers to trade that were removed by U.S. trade agreements. The USITC econometric analysis was based on the Baier and Bergstrand (2007) gravity model of trade. This analysis is based on the GTAP and GTAP-HET frameworks. Simulations with the GTAP model (Hertel, 1997, and Corong et al., 2017) provide an analysis of U.S. trade agreements which abstracts from productivity effects. The GTAP analysis will provide a reference point to which the GTAP-HET analysis will be compared. The GTAP-HET framework (Akgul et al., 2016) introduces the firm heterogeneity theory of Melitz in the GTAP model

Estimation and hypothesis testing using dynamic models of firm behavior

Recent applications of dynamic firm models have utilized data aggregated across commodities and firms. This approach has several shortcomings: (i) restrictive conditions must be applied to ensure exact aggregation across firms, (ii) the estimated dynamic structure is unlikely to represent any of the sub-aggregates, and its is likely to differ from the summed sub-aggregate structures, and (iii) degrees of freedom considerations dictate relatively simple models which do not capture complex dynamic relationships. This thesis develops a panel data set from business records of Indiana dairy farms for the years 1971 to 1982. It distinguishes two capital stocks (machinery and dairy herd), two outputs (crops and milk), and four inputs (hired labor, crop, livestock and other inputs). A cost of adjustment model, derived from a quadratic value function, is fitted to this data. The implied parametric restrictions are rejected implying that intertemporal profit maximization is not consistent with observed behavior. A less restrictive, disequilibrium model is accepted at a 0.025 level of probability. This is a model of partial and interrelated adjustment among commodities with long run behavior characterized by a quadratic profit function. Estimates of the adjustment coefficients suggest: (i) the own-adjustment coefficient for the dairy herd (0.448) is twice as large as that for machinery, (ii) expansion in any capital stock reduces the short run demand for the other stock, and (iii) expansion in machinery temporarily reduces crop production as well as short run demands for hired labor, and crop and livestock inputs. Sample means of adjustment speeds (i.e., that portion of desired adjustment accomplished in a year) were computed over the 1971-82 period. Most of them differed markedly from the own-adjustment coefficients, because cross-adjustment effects, which are taken into account in the computation of adjustment speeds, were large. Extreme cases are milk production and the dairy herd; their adjustment speeds were equal to $-0.03$%. Adjustment in crop production and machinery was not significantly affected by disequilibrium in the dairy herd; their adjustment speeds equalled 90% and 23%, respectively. Hired labor, crop and livestock inputs were significantly affected by disequilibrium in capital stocks, with adjustment speeds equal to 79%, 57%, and 67%, respectively