Aggregate agricultural supply response in Chile, 1962-82

Supply response in agriculture is evaluated using a multisector model of the Chilean economy which was estimated econometrically using data for the period 1962-1982. The economy is disaggregated into agriculture, mining, manufacturing, services and government. The main groups of variables included in the simulation are factor markets, technology, intermediate inputs and prices. It is shown that output responds to price change and that the strength of the response increases with time. The supply elasticity for agriculture is evaluated conditional on total resources and constant price level in order to highlight the substitution effect, which has been questioned. The elasticity converges to unity in a 10 year period. The main features of the model and how it operates are described, and policy implications are drawn.