Assessing Model Assumptions in Trade Liberalization Modeling: An Application to SWOPSIM

This report reviews research on the effectiveness of acreage reduction programs and describes the methodology developed for the Static World Policy Simulation (SWOPSIM) modeling framework to capture the effect of removing these programs. It also analyzes the results of several sensitivity tests of a SWOPSIM model used by the Economic Research Service to study the effects of agricultural trade liberalization. Assumptions concerning how U.S. acreage reduction programs are modeled significantly influence predictions as to how trade liberalization affects commodity prices, production, and trade. However, these assumptions do not significantly influence predictions of how trade liberalization affects producer welfare. In terms of trade liberalization analysis, more crucial are the assumptions regarding agricultural commodity supply elasticities and the degree to which U.S. agricultural policies are decoup1ed from production.