Crop Prices, Agricultural Revenues, and the Rural Economy

U.S. policy makers often justify agricultural subsidies by stressing that agriculture is the engine of the rural economy. We use the increase in crop prices in the late 2000s to estimate the marginal effect of increased agricultural revenues on local economies in the U.S. Heartland. We find that $1 more in crop revenue generated 64 cents in personal income, with most going to farm proprietors and workers (59 percent) or nonfarmers who own farm assets (36 percent). The evidence suggests a weak link between revenues and nonfarm income or employment, or on population.