Dragan Miljkovic

The Law of One Price in International Trade: A Critical Review

The law of one price (LOP) is one of the most frequently tested economic laws. Although called a law, it has probably been violated more than any other economic law (on the basis of the results of numerous empirical studies). Furthermore, the LOP is often utilized as the building block in international agricultural trade models without previously checking the validity of that assumption for that particular commodity. This can sometimes lead to erroneous conclusions that can have serious consequences on policy-making decisions. This article represents a critical review of recent works that discuss how some factors, such as transportation (transaction) costs, tariffs, nontariff barriers, pricing to market, exchange rate risk, and trade regionalization, can prevent market arbitrage to force closer convergence of international prices. The validity of some methods often used for testing the LOP, such as cointegration analysis, is critically reviewed as well.

THE KYOTO PROTOCOL: ECONOMIC EFFECTS OF ENERGY PRICES ON NORTHERN PLAINS DRYLAND GRAIN PRODUCTION

This study examined possible economic impacts on Northern Plains grain producers of policies that could be undertaken by the United States to comply with the Kyoto Protocol. The paper begins with a discussion of the potential effects of the Kyoto Protocol on prices of energy and inputs used in agricultural production. The next section describes the data and econometric models that were used to develop a field-scale, stochastic simulation model of the crop production system typical of the Northern Plains. This model is based on econometric production models estimated with a spatially referenced, statistically representative sample of farmers in Montana. The simulation analysis shows that the impacts of higher energy prices would tend to discourage the use of fallow, raise variable costs of production by 3 to 13%, and reduce net returns above variable cost by 6 to 18% in the case of spring wheat grown on fallow, Under the higher cost scenarios assumed in an analysis conducted by the Farm Bureau, production costs for spring wheat on fallow would increase by 15 to 27% and net returns would decline by 15 to 24%.

Market integration in US gasoline markets

This paper analyses the degree of market integration in the retail gasoline markets in the United States after it was completely deregulated in 1981. The monthly average prices of unleaded regular gasoline, excluding taxes, from January 1983 to December of 1998 for five US Petroleum Administration Defense Districts were considered in the analysis. There is evidence of a high degree of market integration in the gasoline markets as evidenced by the Engel and Granger and Johansen cointegration tests, but perfect market integration is rejected in all but a few cases.

JAPANESE IMPORT DEMAND FOR U.S. BEEF AND PORK: EFFECTS ON U.S. RED MEAT EXPORTS AND LIVESTOCK PRICES

Japanese import demand for U.S. beef and pork products and the effects on domestic livestock prices are econometrically estimated. Japan is the most important export market for U.S. beef and pork products. Results indicate foreign income, exchange rates, and protectionist measures are statistically significant. The comparative statistics quantify the effects of recent economic volatility. For example, the 1995-1998 depreciation in the Japanese yen (39%) reduced U.S. slaughter steer and hog prices by

The barge and rail freight market for export-bound grain movement from midwest to Mexican Gulf: an econometric analysis

1.29 per cwt and

Income effects on the trade balance in small open economies

0.99 per cwt, respectively, while the 1994-1998 reduction in tariffs (14%) increased slaughter steer and hog prices by

Impact of biofuel policies on livestock production in the United States

0.49 per cwt and

Exchange rate pass-through, price discrimination, and US meat export prices

0.33 per cwt, respectively. Livestock producers will continue to have a vested interest in Asian trade liberalization policies.

Agricultural Trade in North America: Trade Creation, Regionalism and Regionalisation

An econometric model of the barge and rail freight market is developed so that factors which influence barge and rail rates for export-bound grain from Midwest to Mexican Gulf can be better understood. Three-stage least squares method is used to estimate the system of four equations that constitute the model. A number of identified factors turned out to be significant in determining grains rail and barge transportation rates. Given the interactive nature of supply and demand processes it is difficult to pinpoint a single most important factor. Yet it is clear that a substitute nature of the two transportation modes in addition to direct price-quantity relationship determine most of the transportation rates.

TRANSPORTING EXPORT-BOUND GRAIN BY RAIL: RAIL RATES IN THE POST-STAGGERS RAIL ACT PERIOD

The objective is to determine the causes of the countercyclicality of the trade balance in five small open economies, namely Austria, France, Italy, Spain, and Switzerland. In order to investigate the role of permanent and temporary changes in income in the determination of the trade balance, Blanchard-Quah variance decomposition procedure is applied. The results of analysis support the conclusion that transitory income shocks are major reasons for the change in the trade balance, and that negative correlation between the trade balance and income is primarily due to transitory shocks. Thus, these results are more consistent with intertemporal models with the dichotomous view in which the aggregate demand shocks are responsible for cyclical variations in the trade balance and income and aggregate supply is responsible for the long-run growth of the economy.