The Effects of Farm Subsidies on Farm Exports in the United States

28 Pages Posted: 21 Apr 2020

See all articles by Lan Anh Tong

Lan Anh Tong

affiliation not provided to SSRN

Mehmet Ali Ulubasoglu

Deakin University - School of Accounting, Economics and Finance

Date Written: July 2019

Abstract

We estimate the elasticity of U.S. farm exports to U.S. farm subsidies using a gravity model of state‐level farm exports to 100 major trading destinations for the period 1999 to 2011. Our identification strategy exploits the within‐state variation that is free of endogeneity bias in the levels and trends of farm subsidies and farm exports. We find that a 1% decrease in farm subsidies would reduce U.S. farm exports by 0.40% per annum. This equivalently means that the complete abolishment of the farm subsidy program would reduce U.S. farm exports by approximately $15.3 billion per year. Importantly, we document robust evidence that amber box subsidy programs such as counter‐cyclical payments and marketing loan gains have the strongest effect on farm exports, while green box subsidy payments, such as direct payments have negligible effects. Finally, subsidy payments affect exports only in agricultural commodities, not in livestock. Our subsidy elasticity estimates are statistically significant, stable, and economically meaningful, and are vitally needed by U.S. and global policymakers in the face of critical domestic and international developments.

Keywords: Farm subsidies, U.S. farm bills, gravity equation, U.S. farm exports

Suggested Citation

Tong, Lan Anh and Ulubasoglu, Mehmet Ali, The Effects of Farm Subsidies on Farm Exports in the United States (July 2019). American Journal of Agricultural Economics, Vol. 101, Issue 4, pp. 1277-1304, 2019, Available at SSRN: https://ssrn.com/abstract=3578982 or http://dx.doi.org/10.1093/ajae/aay112

Lan Anh Tong (Contact Author)

affiliation not provided to SSRN

No Address Available

Mehmet Ali Ulubasoglu

Deakin University - School of Accounting, Economics and Finance ( email )

Burwood, Victoria 3215
Australia
+61 3 9244 6592 (Phone)

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