Developed Countries Agricultural Subsidies and Cotton Production in Burkina Faso: An Analysis Using the Vector Autoregressive Model (VAR)

Abstract

For several years, cotton prices have been experiencing a sustained decline on the world market. For cotton-producing developing countries, this low price is the result of subsidies granted by developed countries, particularly the United States and the European Union to their producers. As a result, these developing countries expect substantial gains in trade and economic development once the subsidies are ended. This article aims to analyze the effect of U.S. and European subsidies on the production of Burkina Faso, one of Africa’s leading cotton exporters whose cotton sector is currently experiencing serious difficulties. The data used in this thesis are secondary data, drawn from existing databases or specialized journals and using an econometric model, the Vector Auto Regressive (VAR) model, the analysis shows that a negative and significant impact of subsidies on cotton production in Burkina Faso is highlighted. The consequences of the end of subsidies on the Burkinabe economy should be positive. Analysis by the VAR model through impulse response functions shows that U.S. and European subsidies negatively affect Burkina Faso’s cotton production and that these impacts do not occur directly but through the world price of cotton. Therefore, the State, cotton companies and producers, the three main actors in the sector, should see their situation improve simultaneously in the event of subsidy removal.