Supplier Substitutability and the Impacts of the 1980 U.S. Grain Embargo

Abstract

AbstractThe 1980 U.S. suspension of grain sales to the Soviet Union illustrates the importance of the choice of conceptual framework for empirical analysis of international trade problems. A spatial equilibrium model of wheat and coarse grains trade assumes perfect substitution among exporting nations' commoditites by importers and, thus, precludes the embargo from having a large impact. The imperfect substitutability assumption of an Armington model results in larger consequences from the embargo. For small shocks, the Armington model better captures the rigidities characteristic of international grain markets. The spatial model provides insights on adjustments to large shocks, but rigidities persist in actual markets.