The State-by-State Effects of Mad Cow Disease Using a New MRIO Model

Until recently, it is hard to find studies to estimate how much the total economic losses for U.S. or other states by the BSE incidents except one dominant study by Devadoss et al (2005), which used CGE (Computable Generalized Equations) model for U.S. However, they are not reporting the direct impacts by each state and indirect impacts resulting from state-by-state economic relations. The interindustry relations and spatial connections have required to developing the Multiregional Input-Output (MRIO) type model, and in the sense, the experience of beef export closures to foreign countries is the suitable case enabling to estimate the economic impacts via inter-regional inter-industrial connections. Therefore, this study estimated the U.S. economic losses by foreign export closures of each state due to the BSE incident in Washington State using a different, newly developed methodology, complementing the previous study. To assess the economic impacts of BSE on each state and U.S. national economy, we used two methodologies. First, we forecasted normal status of beef exports from January in 2004 to April in 2005 using time-series analyses, based on monthly pre-2004 foreign historical exports data obtained from WISERTrade data, in order to calculate the direct gaps between the estimated exports which would have been had if the BSE had not been discovered and the actually decreased exports. Second, a newly constructed MRIO-type model by Park et al (2006), the NIEMO (National Interstate Economic Model), addressed how much the impacts within each state including Washington, interstate effects, and U.S. national losses by the BSE are, based on the final demand losses from the ex-post incidents. While domestic U.S. market can find the equilibrium rapidly by tightening supply side, international barriers to hinder U.S. exports still become a critical agricultural policy for U.S. government. The closure of U.S. exports of bovine by mad cow disease occurred in Washington State yielded a huge shock into the U.S. economy due to simultaneous closures of other state exports. Currently, the only available MRIO model, the NIEMO, enables to estimate the economic losses by the simultaneous closures of each state export of beef and related products. In terms that the NIEMO can supply information comparing the different economic impacts of state-by-state to agricultural policy-makers, they can distribute the national subsides due to the incident, considering the spreading impacts.