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Removing Distortions in the U.S. Ethanol Market: What Does It Imply for the United States and Brazil?

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  • Amani Elobeid
  • Simla Tokgoz

Abstract

We analyze the impact of trade liberalization and removal of the federal tax credit in the United States on ethanol markets using a multimarket international ethanol model. We find that U.S. trade barriers have been effective in protecting the ethanol industry. Under current policy, there is separability of the U.S. ethanol market from world markets. With trade liberalization, the ethanol market deepens, making it less susceptible to price volatility. The effect of trade liberalization extends beyond ethanol markets, affecting agricultural markets. The results show that the impact of removal of the tax credit overrides the impact of the tariff removal. Copyright 2008, Oxford University Press.

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  • Amani Elobeid & Simla Tokgoz, 2008. "Removing Distortions in the U.S. Ethanol Market: What Does It Imply for the United States and Brazil?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 918-932.
  • Handle: RePEc:oup:ajagec:v:90:y:2008:i:4:p:918-932
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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