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Abstract

Intervention by governments in their foreign trade sectors fundamentally alters the character and composition of agricultural trade by making imports less responsive to international price changes than they otherwise would be. Intervention can also make world market prices change more frequently and more drastically. The authors developed a model of government intervention and applied it to the international wheat and rice markets using combined cross-country and time-series data. Using an estimated import equation, they measured the responsiveness of import demand and excess demand to price changes and the extent to which price changes are transmitted to final consumers. Based on this study, the authors concluded that governments reduced the degree of intervention between 1967 and 1980 and that U.S. agriculture is in a good position to benefit from relaxed trade restrictions. Also, increased per capita income does not necessarily increase demand for imported goods; rather, increased per capita export revenues generate the basis for increased purchases of imports.

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