Abstract
Accurate understanding of domestic policy effects on agricultural trade is essential because of the importance of agricultural exports to the country's economic health. This thesis presents the results of a profit maximization (or GNP function) approach pioneered by Kohli (1978) to model agricultural trade. The GNP function approach provides a sound theoretical framework for export supply and import demand based on production theory. I use this approach to model two individual agricultural trade sectors--farm production and food processing. The profit maximization based trade models are estimated, and short and intermediate run elasticities are computed. Hypothesis tests indicate that the underlying assumptions implicit in this approach cannot be rejected for the farm production sector and only one assumption is not supported by the data for the food processing sector. Importantly, for both sectors I discover that exports and domestic bound production cannot be treated as an aggregate output. These findings suggest that the profit maximization based approach offers a number of important improvements over existing empirical trade models. Not only does it address many of the shortcomings inherent in other empirical trade models, it also provides theoretically consistent elasticity estimates for exports and domestic bound production and for imports and domestically produced inputs. Various substitution elasticities are also obtained in the analysis. In addition I evaluate the returns to promotional programs such as the controversial Market Promotion Program. This is accomplished by conducting a sensitivity analysis of welfare effects of the program under various combinations of export demand and advertising elasticities using the estimation results from the farm production and food processing sector models. Results indicate that the Market Promotion Program is very likely not cost effective from a taxpayer's point of view.
Porras, Juan Jose (1995). A profit maximization approach to modeling U.S. agricultural trade. Master's thesis, Texas A&M University. Available electronically from
https : / /hdl .handle .net /1969 .1 /ETD -TAMU -1995 -THESIS -P665.