Evaluating international agricultural policies using a dynamic nonlinear imperfectly competitive spatial equilibrium model

In this paper, a dynamic nonlinear imperfectly competitive spatial equilibrium model is developed to evaluate international and domestic agricultural policies. The objective is to develop a more flexible and comprehensive dynamic policy simulation model to examine imperfectly competitive agricultural trade with various domestic and international support policies. The model is formulated as the nonlinear complementarity problem (NCP) to a dynamic nonlinear imperfectly competitive spatial equilibrium model. In addition to being a dynamic and nonlinear generalization, the model also has the following desirable features. First, free trade agreements (FTAs), such as NAFTA, are explicitly introduced. Second, domestic support policies, such as production subsidies, deficiency payments, and production quotas, are separately introduced. Finally, the model allows for various degrees of imperfectly competitive behavior. To illustrate its usefulness, the model is applied to international wheat trade under several alternative policy scenarios based on proposals of major countries. The dynamic simulation period for all policy scenarios is from 1999 through 2020. The simulation results are consistent with the actions and strategies of major countries in current WTO negotiations.