Overview
Agricultural trade multipliers provide estimates of employment and/or output effects of trade in farm and food products on the U.S. economy. These effects, when expressed as multipliers, reflect the amount of economic activity and/or jobs generated by agricultural exports.
ERS annually estimates agricultural trade multipliers for the most recent calendar year available. The estimates:
- Are derived from the 2002 Benchmark Input-Output (I/O) tables published by the U.S. Department of Commerce, Bureau of Economic Analysis;
- Are adjusted annually to account for changes in prices and labor productivity (see the nonbase year estimation section of the Methodology page for details);
- Include 61 agriculturally based commodities or combinations of agriculture, food processing, tobacco, and fiber and textile products;
- Are for both open and partially closed models at either the producer (farm or manufacturer) or port stage of export (see below for further detail); and
- Are downloadable in Microsoft Excel format.
The 2010 Data Overview of model results shows that each $1 of U.S. farm exports stimulated another $1.34 in U.S. business activity in calendar year 2010. The $115.8 billion of agricultural exports in 2010 produced a total domestic economic output of nearly $271 billion and 907,000 jobs. Previously assessments of the Effects of Trade on the U.S. Economy are also available.
Data
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Open Model Multipliers and Margins
An open model measures the direct and indirect effects
of an economic activity (exports); that is, the impacts of sales and purchases
between all goods and service sectors of the economy, sales to final demand (consumption,
investment, government, and net exports), and purchases of land, labor, and capital
services. Open model multipliers are best suited to describe what has already
happened in an economy or the interrelatedness of sectors in a base period.
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Partially Closed Model Multipliers and Margins
A partially closed model measures the direct, indirect, and induced effects
of an economic activity (exports); that is, the impacts of sales and purchases
between all goods and service sectors of the economy, sales to final demand (investment,
government, and net exports), purchases of land, labor, and capital services,
and the income that is generated by industry to households and the consumption
demanded by households because of that income. It is appropriate to use
partially closed input-output models only when estimating impacts associated
with new economic activity that uses unused resources or production. |
Understanding Open Versus Partially Closed Multipliers
To understand the working of the multiplier process, it is useful to keep the different components of a multiplier separate. Open model multipliers reflect the value of the exported commodity or product to the originating sector (direct effects) plus the value of the activity in supporting sectors (indirect effects), such as inputs, processing, distribution, and other services. Multipliers are measured either at the producer level (which includes just the activity embodied in the commodity as it leaves the farm gate or manufacturer's door) or at the port level (which includes shipping, handling, and storage charges in addition to the farm or manufacturing sector's value). Using corn as an example and 2010 export data, the producer open model multiplier for corn is 3.67 (household sector effects are not considered).
Partially closed model multipliers reflect the direct and indirect effects of agricultural exports, as well as the induced effects, that is, personal income and spending associated with new and sustained activities arising from new resources or production. In a partially closed I/O model and again using corn and 2010 export data as an example, we find personal income (household income) generated per dollar of corn exports is 3.29. Consumption spending spurred by this income growth generated an additional 4.74 of output. Thus, the partially closed producer output effect per dollar of corn exports comprises 3.67 (direct effects plus indirect output), 3.29 (personal income) and 4.85 (output induced by new consumption).
To get this full (3.67 + 3.29 + 4.85) 11.81 output effect for corn, presented in the closed multipliers table as the partially closed producer output multiplier, the household sector must 1) continue to receive as income the constant share of each sector's output, 2) continue consuming the same fixed bundle of goods and services, and 3) spend about 70 percent of its income on those goods and services during the year measured.
These multipliers assume the only limit on the output of an economy is a lack of markets for its production. I/O models assume that as new demands emerge, such as increased exports, new production to meet these new demands uses idle resources (labor, land, and production capacity). Yes, these assumptions oversimplify how an economy operates. But simplification is the nature of most economic models; they use simplifying assumptions to distill basic relationships.
Documentation
For more information on the ERS estimates, see:
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