Handbook of Agricultural Economics

Robert E. Evenson, Prabhu Pingali

• Publisher: North Holland
• Year: 2009
• eBook ISBN: 9780080930978
• Topic: Business
• Subtopic: Agribusiness
• Index: Business

Advances in agriculture offer many countries the best and only chance of reducing poverty. Yet economic growth and population increases are driving higher demand for food and rising real prices. What solutions have successfully promoted agriculture? This volume examines national and international food agriculture policies and how they enhance agricultural productivity growth. It provides unique historical reviews on policies and their effects, and it clearly articulates both positive and negative lessons for promoting agriculture lead growth. With chapters written by international authorities, this book recognizes that agriculture is not just about providing food for today, but about growing it in an environmentally sustainable way that can help people work their ways out of poverty.Chapters cover international macro-economic policies and trade, farm structure in developing countries, regional experiences in agriculture, and regional studies on agricultural productivity policies.

Chapter 61 Macroeconomics, Macrosectoral Policies, and Agriculture in Developing Countries

Eugenio Diaz-Bonilla

Inter American Development Bank

Sherman Robinson

University of Sussex

This handbook devotes most of its chapters to reviewing sectoral policies related to agriculture. This chapter moves to a macroeconomic and macrosectoral view of the policy framework and its possible interaction with the agricultural sector. A previous handbook (Gordon Rausser and Bruce Gardner, eds., 2002) devoted a whole section with several chapters to economywide policies.¹ Since then, there have been nontrivial changes in macroeconomic trends and policy debates, not only regarding domestic aspects but also, and perhaps more relevant for developing countries, at the level of the global economy. In the spirit of Schuh (1986) this chapter attempts to review and update some of the world macroeconomic issues relevant for agriculture, while at the same time covering domestic macroeconomic development affecting the sector, in both cases taking mostly the perspective of developing countries.

The rest of this chapter is organized as follows. In Section 1, we define the main macroeconomic topics that we will cover and their links to agriculture. Section 2 presents a brief characterization of differentiated structural issues in developing countries economy in general and the agricultural sector in particular as a background for a more detailed analysis of world macroeconomic conditions and trends (Section 3) and of domestic macroeconomic policies (Section 4). Section 5 concludes by trying to weave a narrative with the performance of the agricultural sector in developing countries during the last half-century in light of world and domestic macroeconomic issues analyzed in the previous two sections and to present some speculative thoughts about the future evolution of the sector in those countries.

JEL classification: E000, Macroeconomics and Monetary Economics: General; F000, International Economics: General; O110, Macroeconomic Analyses of Economic Development; Q180, Agricultural Policy; Food Policy

Keywords: macroeconomics; developing countries; economic crisis; macroprices

1. Macroeconomic and macrosectoral policies: Some precisions and conceptual issues

1.1. What are the macroeconomic problems and issues considered?

¹ The distinction between growth (with policies acting on the aggregate supply, mainly in the medium to long term) and stabilization of cycles (with policies directed at aggregate demand, basically in the short run, to smooth out expansions and recessions) seems, at first, a natural way to organize the discussion about macroeconomic issues. If that dichotomy were accepted, the macroeconomic policy problem could be simply defined as the stabilization of the aggregate demand around the (independently determined) growth trend of the aggregate supply to avoid either unemployment (if there is a lack of aggregate demand compared to potential aggregate supply) or inflation and balance-of-payment problems (in case of excess of aggregate demand over supply). We could call the alignment of aggregate demand with aggregate supply the first macroeconomic problem.

¹This is particularly the case of Chapter 29: “Agriculture and the Macroeconomy, with Emphasis on Developing Countries,” by Maurice Shiff and Alberto Valdes; Chapter 30: “Agriculture and the Macroeconomy,” by Pier Gorgio Ardeni and John Freebairne; and Chapter 34: “Agriculture in the Macroeconomy: Theory and Measurement,” by Alex McCalla and Phil Abbot. Other relevant chapters in that handbook include Chapter 28: “Applied General Equilibrium Analysis of Agricultural and Resource Policies,” by Thomas Hertel; Chapter 31: “Agriculture and Economic Development,” by Peter Timmer; Chapter 32: “The Rural Sector in Transition Economies,” by John Nash and Karen Brooks; and Chapter 33: “Rural Development and Rural Policy,” by Elisabeth Sadoulet, Alain DeJanvry, and Rinku Murgai.

However, as Stock and Watson (1988) have argued, this dichotomy between trend growth and cycles around it could be misleading if there are important interactions between those two aspects. Thus, it is not adequate to define the macroeconomic problem as merely a question of how to align aggregate demand with an independently evolving aggregate supply. The interactions between trend growth and the cycle must be also considered. ² Those interactions come from several factors, including the influence of macroprices—such as the terms of trade, exchange rate, interest rate, and average wages—on stabilization of the cycle and on growth trends.

²The argument of Stock and Watson refers mainly to the U.S. economy. Similarly, Aguiar and Gopinath (2004) argue that for developing countries, “the cycle is the trend.”

The exchange rate plays a central role both in the nominal aspects related to the short-run management of the aggregate demand and in the real aspects affecting aggregate supply in the longer run. The dual role of the exchange rate is reflected in the two approaches to exchange rate policy that have been applied in developing countries. First, the “real exchange rate” approach emphasizes the influence of the exchange rate on production and trade (see Balassa, 1977 and Balassa, 1985). Second, the “nominal anchor” approach highlights the role of the exchange rate in the inflationary process and its relationship with interest rates, capital flows, and asset accumulation. The duality of the exchange rate has been at the core of several proble...

Table of contents

• Cover Image
• Table of Contents
• Introduction to the Series
• Chapter 61 Macroeconomics, Macrosectoral Policies, and Agriculture in Developing Countries
• Chapter 62 International Trade Policies Affecting Agricultural Incentives in Developing Countries
• Chapter 63 Development Aid and Agriculture
• Chapter 64 Plantations Agriculture
• Chapter 65 Farm Size
• Chapter 66 Production, Productivity, and Public Investment in East Asian Agriculture
• Chapter 67 Rural Poverty and Income Dynamics in Southeast Asia
• Chapter 68 An Assessment of the Impact of Agricultural Research in South Asia Since the Green Revolution
• Chapter 69 Population Growth and Trends in Food Production and Consumption in the CWANA Region
• Chapter 70 The Changing Context and Prospects for Agricultural and Rural Development in Africa
• Chapter 71 Agricultural Productivity in Latin America and the Caribbean and Sources of Growth
• Chapter 72 Total Factor Productivity Growth in Agriculture
• Chapter 73 Agricultural Productivity and Economic Growth
• Chapter 74 Agriculture Renaissance