Applying time series analysis to supply response and risk

Type Thesis

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Summary

The main purpose of this thesis is to both review the existing econometric evidence and to provide further empirical evidence on supply response to prices and risk in order to assess the quantitative significance of price variables in the agricultural sector. Empirical results presented in this thesis are based on state and province level estimates from Turkish agriculture for the time period of 1950-90. Estimates of short-run elasticities of area planted with respect to the ratio of own-price and cross-price to fertiliser price are (0.813) and (-0.270), respectively. The corresponding long-run estimates are (0.230) and (-0.297). By convention an elasticity less than 1% is considered inelastic.In terms of the size of the estimated elasticities following points should be made: Firstly, the short-run response in agriculture is very low, because the main inputs such as land, labour and capital, are fixed. Secondly, the size of short- and long-run elasticities are close to each other. This could be explained by the low elasticity of supply response of the fixed factors. The elasticity of supply response increases with time as desired factor reallocation becomes more complete and as factors which are fixed in the short-run can become variable. Thirdly, the introduction of new varieties provides a significant and positive acreage response (0.637), while the stabilisation policies decrease (-0.293) area planted for wheat in the province. In the light of such evidence, the case for a positive price policy for agricultural development is strong indeed.