Price Transmission Elasticity Research Articles

RURAL ASSISTANCE LEVELS: THE INFLUENCE OF POLICIES AND WORLD PRICE CHANGES

Two aspects of effective rates of assistance for Australian agricultural industries are examined. The long‐term rate, rather than the rate for a single year, is determined and a rationale is sought for the pattern of assistance that emerges. Second, the influence of exogenous factors (as represented by changes in world prices) on assistance rates is examined. Assistance elasticities are calculated for the major agricultural commodities and estimates made of the likely change in the pattern of assistance rates from any general world price change. In addition, commodities with assistance rates potentially very different from existing rates are identified. Price transmission elasticities are also derived to indicate the degree of insulation that the various policies provide for each commodity.

The Elasticity of Foreign Demand for U.S. Agricultural Products: The Importance of the Price Transmission Elasticity

Johnson and Tweeten (1967, 1977) have provided estimates of the elasticity of export demand for specific agricultural commodities and aggregate agricultural exports. These estimates indicate the aggregate export demand for U.S. agricultural commodities is very elastic with respect to price, and the estimated elasticity is somewhat greater than 6.0 in both cases. The elasticities of export demand for specific commodities are also very large, ranging from -2.8 for soybeans to 10.18 for feed grains (Johnson). Theoretically, the elasticity of export demand may be quite large. However, the Johnson-Tweeten estimates do not consider government policies which insulate domestic producers and consumers from external price fluctuations. In order to study the effect of these policies on the elasticity of export demand, we (a) examine the formulation of the elasticity of export demand and the implication of price insulation policies, (b) review the trade policies of major importers and competing exporters, and (c) calculate the export demand elasticities for major agricultural commodities which incorporate price insulation policies. These export demand elasticities are much smaller than those of Johnson and