A Computable General Equilibrium Model: Impacts of Removing U.S., Chinese, and Indian Subsidies on the Global Cotton Market

Avery Nie and Houtian Ge

No 404642, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: Cotton subsidies remain a major source of controversy in global agricultural trade because they affect world prices, production incentives, and the competitiveness of nonsubsidized producers. While earlier debates focused largely on U.S. cotton support, China and India have become major subsidizing countries, changing the structure of the global cotton subsidy problem. This paper develops a computable general equilibrium model (CGEM) to evaluate the effects of removing cotton subsidies in the United States, China, and India on the world cotton market. The model divides the world into five country groups and simulates alternative policy scenarios, including individual subsidy removal, proportional subsidy reductions, and complete elimination of subsidies in all three countries. Results show that subsidy removal raises the world cotton price, reduces production in subsidizing countries, and shifts production and export opportunities toward non-subsidized cotton producers. Complete removal of subsidies in the United States, China, and India increases the simulated world cotton price by approximately 11% relative to the benchmark. The trade results further show that U.S. subsidies primarily support export supply, China’s subsidies reduce import dependence, and India’s subsidies support domestic production and exportable surplus. Welfare effects are uneven: non-subsidized exporters benefit from higher prices and expanded market opportunities, while cotton-importing regions face higher costs. These findings suggest that cotton subsidy reform remains important not only for market efficiency but also for development outcomes in cotton-dependent exporting regions, particularly West and Central Africa (WCA).

Keywords: International; Development (search for similar items in EconPapers)
Pages: 45
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404642

DOI: 10.22004/ag.econ.404642

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