Econometric Analysis of Corn Ethanol Production Impacts
In the last decade, concerns about the environmental impacts of petroleum use and over reliance on imported petroleum from politically unstable regions of the world have driven the increased production of ethanol. Ethanol is an additive to conventional gasoline and is typically produced by using corn as the primary reagent.
More recently, sharp increases in the price of food have been experienced. This has occurred during the time period in which corn derived ethanol production has also expanded. Many economists and political pundits have explicitly stated their view that this increase in food price is due to the ethanol industry’s demand for corn. Many foods aside from those that make direct use of kernel corn/corn on the cob use its derivatives such as high fructose corn syrup for manufacture, so the viewpoint that the ethanol industry drives food prices up is a logical theoretical assumption.
Our aim in this research project is to test the hypothesis that there is a correlation between changes in corn ethanol production levels and changes in food prices. We will do this statistically using simple linear regression with estimates produced with the ordinary least squares method, all within the framework of the classical linear regression model. We will then use the objective, empirical data demonstrating a correlation or lack thereof and integrate it with accepted contemporary economic theory to determine what causal relationship exists if any between the two variables.