JOURNAL OF ECONOMICS AND DEVELOPMENT STUDIES, vol.4, no.2, pp.189-206, 2016 (Refereed Journals of Other Institutions)
By the first half of 2008, all around the world, international agricultural commodity prices had reached their highest level on a dollar basis in the last thirty years. The biofuel production that is considered as one of the surge reasons in the agricultural commodity price has dramatically increased over the last decade. This paper analyzes the relationship between corn demand originating from bioethanol in the United States of America (USA)and corn prices between 1993: Q1 and 2011: Q2. Accordingly, the simultaneous equations system composed of corn supply, corn demand originating from bioethanol, and corn price equations is estimated through the Three-Stage Least Squares (3SLS) method. Results of the study suggest that the corn demand originating from bioethanol has an important and positive impact on the corn prices. An increase of one percent in the bio-ethanol driven corn demand causes an increase of 0.14 % in the corn prices. Thus, it can be observed that bioethanol production growth in the USA is an important fact for explaining the increase in the international corn prices.