Empirically Analyzing the Impacts of U.S. Export Credit Programs on U.S. Agricultural Export Competitiveness

(i) Domestic Demands of the Importing Country in the Absence of Secondary
Benefits from an Export Credit Program

(a) The Marshallian Demands with the Absence of Export Credits

For simplicity, we assume that there is one tradable and homogeneous good,
namely good 1. Regarding good 2, we assume the importing country produces it for
domestic consumption. Alternatively, good 2 can be assumed that trade is not possible or
there is no benefit from trading it. However, the two goods are substitutable in
consumption. Suppose that the preferences of the representative consumer can be
represented by a Cobb-Douglas utility function such as,

(2)        U(c1,c2)=c1^αc2^β

It is assumed that 0 < α< 1, 0 < β< 1 , and α+ β= 1 . With fixed income I , suppose
that the consumer faces the prices of good 1 and good 2 such that p₁ and p₂
respectively. From the perspective of the consumer in the importing country, if he/she
does not receive secondary benefits from an export credit program of the exporting
country, his/her budget constraint is not affected. Then, the utility maximization of the
consumer can be expressed as:

(3 a )        MaX_{1isc c}2^{U ( cι^{, c} 2) = cl “c 2 ^β}

Subject to

(3b)        p_lc_l+p₂c₂=I

Forming the Lagrange function, deriving the first order conditions, and solving them, the
Marshallian demands of goods l and 2 can be obtained as:

l6

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