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Trade Liberalization: the Impact on Utah's Dairy and Meat Industries Utah State University DigitalCommons@USU All Graduate Theses and Dissertations Graduate Studies 5-1986 Trade Liberalization: The Impact on Utah's Dairy and Meat Industries Tyler J. Bowles Utah State University Follow this and additional works at: https://digitalcommons.usu.edu/etd Part of the Economics Commons Recommended Citation Bowles, Tyler J., "Trade Liberalization: The Impact on Utah's Dairy and Meat Industries" (1986). All Graduate Theses and Dissertations. 4093. https://digitalcommons.usu.edu/etd/4093 This Thesis is brought to you for free and open access by the Graduate Studies at DigitalCommons@USU. It has been accepted for inclusion in All Graduate Theses and Dissertations by an authorized administrator of DigitalCommons@USU. For more information, please contact [email protected]. TRADE LIBERALIZATION: THE IMPACT ON UTAH'S DAIRY AND HEAT INDUSTRIES by Tyler Joe Bowles A thesis submitted in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE in Economics APPROVED: UTAH STATE UNIVERSITY Logan, Utah 1986 ii ACKNOWLEDGMENTS I wish to express my gratitude to Dr . Basudeb Biswas for his help and guidance throughout my graduate program . While his direct support made the c ompletion of this study possible, his example provided the i mpetus for my further graduate education. Appreciation is also extended to Dr. Terrence F. Glover and Dr . Donald L. Snyder for serving on my graduate com mittee and providing valuable input for this thesis. Special thanks to the Utah State Agricultural Experiment Station for funding my research work while at Utah State University . Finally, my deepest thanks go to my wife , Marni, and my parents, Mr . and Mrs. Kelly Bowles , for their never ending faith in me and my pursuits . Ty ler Joe Bowles iii TABLE OF CONTENTS Page A CKNOWLEDGEMENTS .......... ... .. ........ ............. ii LIST OF TABLES .... ,V LIST OF FIGURES .. ,,, .vi ABSTRACT . .vii Chapter I. INTRODUCTION . .. ........... 1 Agriculture's Involvement in the International Economy .... .. ...................... 1 Value of Dollar : New Protectionism. .5 Thesis Objectives. 9 II. LITERATURE REVIEW .... 10 Sectoral Studies on Trade Liberalization. .10 Papers on Utah Agricultural Trade ... 12 III. THE INVOLVEMENT OF UTAH AGRICULTURE IN INTERNATIONAL TRADE .. ... .... ......... .. ...... l4 Utah Agriculture's Exports .. .. .. ...... .14 Utah Agriculture and U . S . Agricultural Trade Patterns ............... ...... .20 Structure of Utah Agriculture .... .. .. .21 U.S . Agricultural Trade Patterns ............. 2 3 Summary . .2 6 IV. TRADE LIBERALIZATION. .29 Costs and Benefits of Trade Barriers. .30 Costs and Benefits of Trade Liberalization. .35 Reasons for Trade Liberalization . 36 Trade Liberalization : Estimation of Production Changes. .37 The Mode 1 ...... .. 3 7 Data .... .. ....... ..... .. 42 iv TABLE OF CONTE NTS (continued ) Page Structural Adjustments .. .44 Net Product i on Effe ct . ... 48 Trade Liberaliz a tion : Estimatio n of Direct and Multipl i er Effects .. ............... 49 Model and Data ....... ... .... .. ..... 4 9 Direct and Multiplier Effects .... ..... .. .... 50 Summary ... ... ..... ........ .. ......... ....... 53 V. SUKKARY , CONCLUSIONS, AND SUGGESTIONS FOR FURTHER RESEARCH ............ .. ..... ... ....... 55 Suggestions for Further Research .......... .. 56 LITERATURE CITED ....... .......... .... .. .. .... ... 5 7 APPENDIXES ... ... .. ...... .... .. ... ........ ... 59 Appendix A. A Derivation of Equation ( l ) ( p.38 ) ... 6 0 Appendix B . ....... ...... .. ....... ...... .. .. 62 VITA .. ..... .............. .. .. .. .. .... ......... .. ..... 65 v LIST OF TABLES Table Page 1 . Exports, Imports, and Trade Balance : Total, Agricultural and Nonagricultural , 1976-84 , ($1 , 000,000) . .... ..... .. ....... .. .... 3 2. World ' s Leading Agr icultural I mporters. .4 3. U . S . Agricultural Imports: Total , Supplementary a nd Complementary , 1 974-83 .... .. ... 6 4. Utah's Share in the Value of U. S . Agricultural Exports for Selected Comm odities and Total, 19 75- 84, ($1,000 , 000 ).. .... .. .. ... .. 15 5 . Utah's Production, Value of Production , and Exports of Hay, 1980-84 ................ ........ 17 6 . Utah's Production , Value of Production , and Exports of Turkey Heat, 1980-84 .............. ....... 19 7 . Share of Selected Commodities in Total Cash Receipts from Utah Agriculture, 1976-84, Percentage..... ........... .. .. .. .. 22 8. U. S. Agricultural Exports : Value by Commodity or Com modity Group , 1982-84 , ($1,000). ....... .. 24 9. U. S. Major Competitive Agricultural Imports , 1982 , ($1,000 ) ... .. .. ··················· · ·· ···· · ·· ···· .. 25 10. Exports , Imports, and Intraindustry Trade Index for Selected Commodity Groups , 1981-83 , ( $1,000).... .. ...... ............. .... 27 11 . Distribution of Costs and Benefits from Import Restraints in the Dairy and Heat Industries .... 34 12 . Effect on U.S . Imports , U . S. Production, and Utah Production of Heat and Dairy Products from Trade Liberalization in these Products, ($1,000,000) ....... 45 13. Effect on U.S. Exports , U. S . Production, and Utah Production of Hea t a nd Dairy Products from Trade Liberalization in these Products, ($1 , 000 , 000) ....... 46 14 . Direct and Multiplier Effects on Output, Employ ment , and Income in Utah's Economy from Total Trade L ibe ralization i n Dairy and Heat Products ....... .. .. 52 vi LIST OF FIGURES Figure Page 1 . Welfare Effects of a Trade Barrier . ... ... .. ...... 31 vii ABSTRACT Trade Liberalization : The Impact on Utah 's Dairy and Meat Industries by Tyler Joe Bowles, Master of Science Utah State University, 1986 Major Professor : Dr . Basudeb Biswas Department: Economics Trade liberalization in dairy and meat products is of significant interest for Utah since 75 percent of Utah farm cash receipts are from these two products and both product groups are net U.S. imports. This thesis analyzes the impact that trade liberalization in dairy and meat products would have on Utah's dairy and meat industries and Utah's general economy . A model based upon the current level of imports and exports, the price elasticity of import demand, and the tariff equivalent of import restrictions is used to est i mate the production changes in Utah's dairy and meat industries that would result from trade liberalization. Multipliers are then used to translate production changes into total output, total income, and employment changes in Utah's e c onomy . The general conclusion reached is that the over a ll effect would be small. The major reason for th i s result i s that the dairy and meat industries are characterized b y a high degree of intraindustry trade . (7 2 page s) CHAPTER I INTRODUCTION If a nation is not invo l ve d in the international econo my, that is , if it doesn't allow commodities and capital to c ross its borders, then the environment in which its economy functions is domes tically determined. The United States is, however, part of an international economy; therefore its economy functions in an env ironment partially determined by factors arisin g from and governing the international economy. As G. Edward Schuh said of the Un ited States , ( p . 9) "We are truly part of an international s y stem, and that thinking about ourselves as a self -standing, i ndepende nt economy is no longer relevant" . Utah agriculture as a subunit of American agriculture is p art of this international system and consequently affected by t h e forces that govern it. The purposes of this introductory chapter are to briefly d i scuss why American agriculture is part of this international system and discuss recent dev elopments in the factors that govern it that are of importance to American agriculture and hence Utah agriculture . Th e objectives of this thesis will then b e enum erated in light of the above introduction. Agri culture's Involvement in the International Econo•y The prime reason American agriculture is open to international economic forces is the exten t t o which it 2 relies on exports to absorb surplus domestic production. Th e significance of foreign markets to American agriculture c an be illustrated b y the fact that the output of two out of every five acres harvested in the United States is exported ; three-fifths of U.S . wheat, more than half of U.S. soybeans, and almost a third of U.S. corn are exported. Indeed as much as 30 percent of cash marketings c an be attributed to exports (Experiment Station Committee on Organization and Policy). From a trade balance point of view, agriculture is a large net exporting sector of the American economy. An examination of Table l indicates that if the economy is divided into two sectors--agriculture and nonagriculture-­ the agricultural sector runs a trade surplus while the non­ agricultural sector runs a trade deficit. The annual agricultural trade surplus grew rapidly throughout the 1970s to an all time high of $26.3 billion in 1981. That surplus has since fallen to $18 billion in 1984. Still in recent years, agriculture has accounted for nearly a fifth of total exports . International economic forces also affect American agriculture since the United States is also a large importer of agricultural products. As Table 2 shows , in 1970 the United States was the largest market for agricultural products and i s still (1980-82) the number three market behind West Germany and the USSR. However , all imports are not of the same significance . It depends on whether the TABLE 1. Exports, Imports, and Trade Balance:
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