INTERACTION EFFECTS OF PROMOTION, RESEARCH, AND PRICE SUPPORT PROGRAMS FOR U.S. COTTON

very important role. The price elasticity for the world price of cotton is around 0.7, suggesting that
foreign cotton and U.S. cotton are substitutes for one another, and that U.S. export demand is fairly
sensitive to the world cotton price.

Although a relatively simple model, the results of the supply equation estimation appear
reasonable in terms of the estimated supply elasticity and the signs of the parameters. Table 2 provides
the results of the estimation for the model estimated with OLS both with and without the input price
index. The trend term is very significant when the farm input price index is not included in the model.
Once the input price is added to the specification, the trend variable becomes much smaller in magnitude
and is no longer significant. This suggests that an important part of the outward supply shifts over time
being captured by the trend variable is due to reductions in input costs. Due to difficulties in separating
out the impacts of CI expenditures on supply shifts over time, the primary use of the supply model is to
obtain econometric estimates of the supply elasticity, rather than to estimate the supply side impacts of
the CRPP.

Table 2. Regression Results for Annual Supply of U.S. Cotton, 1975-2000

There was no evidence of significant autocorrelation for either model. The price elasticity of
supply is about 0.45 for the model without the input price index and 0.49 in the model including that

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