Working Paper: NBER ID: w8689
Authors: Douglas A. Irwin
Abstract: The United States produced about 80 percent of the world's cotton in the decades prior to the Civil War. How much monopoly power did the United States possess in the world cotton market and what would have been the effect of an optimal export tax? This paper estimates the elasticity of foreign demand for U.S. cotton exports and uses the elasticity in a simple partial equilibrium model to calculate the optimal export tax and its effect on prices, trade, and welfare. The results indicate that the export demand elasticity for U.S. cotton was about -1.7 and that the optimal export tax of about 50 percent would have raised U.S. welfare by about $6 million, about 0.1 percent of U.S. GDP or about 0.5 percent of the South's GDP.
Keywords: cotton exports; optimal export tax; elasticity of demand; welfare effects
JEL Codes: F1; N3; N5; Q1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| elasticity of foreign demand for U.S. cotton exports (F10) | optimal export tax (H21) |
| optimal export tax (H21) | U.S. welfare (I38) |
| elasticity of foreign demand for U.S. cotton exports (F10) | U.S. welfare (I38) |