The location of marginal production for value-added and intermediate goods: optimal policies and trade volumes

For many years the United States and other countries have used subsidies to promote exports of agricultural commodities. Although wheat exports have captured the largest share of U.S. subsidies in recent years, there has been a concerted effort in the United States to increase exports of high-value products (HVPs). To a large extent, economic analysis of export subsidies has focused on trade in final goods; however, thorough treatment of subsidized exports of HVPs must take into account the impact these policies have on markets for the intermediate inputs used to produce value-added goods;This dissertation seeks to provide both a theoretical and empirical analysis of subsidies that promote exports of value-added goods, paying close attention to their effects on pure intermediate product markets. A careful exposition of the theory of trade in intermediate goods is utilized to construct an empirical model for simulating the introduction of subsidies for U.S. broiler exports. The study is primarily concerned with the subsidy's impact on the location of broiler production and on trade volumes for broilers, corn, and soy bean meal. In addition, optimal trade policies for value-added and intermediate goods are examined to identify the conditions under which an export subsidy for HVPs may be considered a rational policy;The simulation model is also employed to analyze the response in meat and feed grain markets to reductions in the cost of transporting meat and to fluctuations in the value of the real exchange rate. The simulation results indicate that exports of meat products increase much more rapidly than exports of feed grains following a depreciation of the exchange rate. This finding may be indicative of a more general conclusion that trade in value-added goods is more sensitive to exchange rate movements than trade in their underlying intermediate products.