Economywide Implications of Agricultural Liberalization in the United States

Agriculture is a relatively small part of the U.S. economy, but public expenditures supporting agriculture are large in both relative and absolute terms. Given this combination, changes in agricultural policies may have significant economywide effects. These effects will depend on the degree of factor mobility, the disposition of the saved farm program expenditures, and the nature of existing sector-specific distortions. We use a 10- sector computable general equilibrium model to analyze unilateral and multilateral agricultural liberalization under various assumptions about factor mobility and macroeconomic closure. We find that assumptions at the microeconomic level about land and labor mobility (but not necessarily capital mobility) are critical in determining economywide gains from liberalization. At the macroeconomic level, the important assumption in determining the magnitude of the gains is whether or not the saved program expenditures are used to reduce the Government deficit.