An Analysis of the Economic Impact of Agricultural Production Expenditures on the Louisiana Economy.

Abstract

This study provides an analytical framework via a simultaneous equations model for estimating the economic impact of agricultural production expenditures of the economy of Louisiana and nine intrastate farming areas producing different combination of major farm enterprises. The simultaneous equations model containing six linear equations and an identity describes the structural relationships between six endogenous and five predetermined variables. Economic impact multipliers were estimated for key performance variables, such as employment, earnings, personal income and retail sales. An exogenous increase of a dollar in agricultural expenditure, the variable used to reflect changes in farm production, was estimated to generate a total increase (direct and indirect) of 41 cents in service earnings, 30 cents in retail sales, 53 cents in personal income and 41 cents in total earnings in the state's economy. Service employment increased 0.16 units. Multipliers for similar endogenous variables differed substantially by farming area. Employment, personal income, earnings and retail sales multipliers in farming areas where livestock income exceeded crop income were estimated to be larger than those in farming areas where crop income was more than livestock income. Multipliers derived with respect to government earnings produced the largest employment, income and earning impact on the state and farming area economies. Multipliers with respect to agricultural expenditures ranked second in importance. In farming areas having large urban population centers, such as SMSAs, multiplier effects were enhanced greatly. These areas not only have broad industrial bases but they also have large service sectors and well established linkages between sectors. The model was used to assess the impact of changes in major commodity programs stipulated in the 1981 Agricultural and Food Act. Rice and cotton acreage limitation programs were chosen for analysis. Because of higher production costs and larger acreages, a 15 percent reduction in rice production would have a greater impact on the state economy than a similar reduction in cotton production. Service earnings, retail sales, total earnings and personal income decreased 2.3, 2.1, 1.1 and 1.5 percent, respectively. Endogenous variable values were simulated for two major rice and cotton producing farming areas in Louisiana.