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The Impact of US Subsidies on the World Cotton Market: A Reassessment

Author

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  • Ben Shepherd

    (Groupe d'Économie Mondiale)

Abstract

Following a critical review of the existing quantitative literature on cotton subsidies, a vector autoregression (VAR) is used to model the effects of US subsidies on the world cotton market from 1965 to 2001. Surprisingly, subsidies are found to have only a limited impact on prices despite their effects on production and consumption. The dynamic relationships between quantities, prices, stocks and subsidies are found to be considerably more complex than those suggested by basic theory. Finally, simulation results indicate that even large reductions in US subsidies will not necessarily lead to significantly higher world prices.

Suggested Citation

  • Ben Shepherd, 2005. "The Impact of US Subsidies on the World Cotton Market: A Reassessment," International Trade 0511012, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpit:0511012
    Note: Type of Document - pdf; pages: 42
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/it/papers/0511/0511012.pdf
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    References listed on IDEAS

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    1. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
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    4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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    6. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    7. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    8. Bruce A. Babcock & John C. Beghin & Jacinto F. Fabiosa & Stephane De Cara & Amani Elobeid & Cheng Fang & Chad E. Hart & Murat Isik & Holger Matthey & Alexander E. Saak & Karen Kovarik & FAPRI Staff, 2002. "Doha Round of the World Trade Organization: Appraising Further Liberalization of Agricultural Markets, The," Center for Agricultural and Rural Development (CARD) Publications 02-wp317, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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    11. Baffes, John, 2004. "Cotton : Market setting, trade policies, and issues," Policy Research Working Paper Series 3218, The World Bank.
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    Cited by:

    1. Shepherd, Ben, 2006. "Estimating Price Elasticities of Supply for Cotton: A Structural Time-Series Approach," MPRA Paper 1252, University Library of Munich, Germany.
    2. Blasco, Lorea Barron & Devadoss, Stephen & Stodick, Leroy, 2006. "The Doha Round Declaration on Cotton: A Catalyst for Poverty Reduction in Africa?," 2006 Annual meeting, July 23-26, Long Beach, CA 21161, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item

    Keywords

    Vector Autoregression; Subsidies; World Prices; Cotton Market;

    JEL classification:

    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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