Estimation and Evaluation of Economic Community Wheat Export Subsidies

This report uses Granger's notion of causality to examine the relationship between the EC export subsidies and U.S. wheat export prices. The hypothesis that the EC's per unit export subsidy does not "cause" U.S., world, or EC export prices in the short run cannot be rejected, nor can the hypothesis be rejected that the U.S. or the world wheat price does not "cause" the per unit wheat subsidy. The results suggest a one-way causal relationship between EC exports and EC export price, but neither the export volume nor the per unit subsidy "cause" U.S. wheat export prices. The hypothesis that EC wheat exports are not caused by U.S. export prices is rejected, but causation is one directional without feedback; EC exports do not cause U.S. export prices. In determining the level of the monthly per unit subsidy granted, the EC responds to changes in the price of U.S. corn, but not to changes in the price of U.S. wheat, indicating that EC wheat competes with feed grains rather than U.S. wheat. The refund level also depends upon the ECU-U.S. dollar exchange rate. A 10-percent devaluation of the dollar relative to the ECU results in a 15-percent increase in the maximum wheat subsidy.

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AGES 89-55

 Record created 2018-10-15, last modified 2020-10-28

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