Abstract
U.S. competitiveness in agricultural products and the competitiveness of individual states can be shifted by changes in public policies on R&D, extension, infrastructure, and other programs. States are heterogeneous in agro-climatic conditions and resource-base, and they have different public R&D, extension, and infrastructure policies. The objective of this paper is to assess the impacts of public investment in research and infrastructure on cost of production and input demands in five Midwestern states (Minnesota, Iowa, Illinois, Missouri, and Indiana). We represent technology via the variable cost function. Our model identifies two outputs (crops and livestock) and four variable inputs (capital, land, hired labor, and materials). Fixed factors include self-employed and unpaid family labor, own R&D, potential spillovers from other states’ investment in research, and infrastructure (i.e., roads and highways).
We estimate the variable cost function using pooled time series and cross section observations. The parameter estimates are used to construct measures of price responsiveness. The own-price elasticities of demand, evaluated at sample means, for capital, land, hired labor, and materials are −0.86, −0.70, −0.59, and −0.04, respectively. Pair-wise substitution dominates. Capital and land and capital and hired labor exhibit strong substitutability. The impacts on variable costs of increasing endowments of the fixed factors are large and negative. Finally, the implied internal rate of return to investment in agricultural research exceeds 40 percent per annum.
The authors are Professor, Department of Economics, Iowa State University; Economist, ERS-USDA; Associate Professor, Department of Agricultural and Resource Economics, Oregon State University, and Economist, ERS-USDA. The received helpful comments from two reviewers of an earlier draft of the paper, and participants in the joint NC208, ERS, and Farm Foundation sponsored conference, “Agricultural Productivity: Data, Methods, and Measures,” Washington, D.C., March 1999. Financial assistance has been obtained from ERS, the Iowa Agricultural and Home Economics Experiment Station, and the Oregon Agricultural Experiment Station.
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Huffman, W.E., Ball, V.E., Gopinath, M., Somwaru, A. (2002). Public R&D and Infrastructure Policies: Effects on Cost of Midwestern Agriculture. In: Ball, V.E., Norton, G.W. (eds) Agricultural Productivity. Studies in Productivity and Efficiency, vol 2. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-0851-9_7
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DOI: https://doi.org/10.1007/978-1-4615-0851-9_7
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