Empowering Rural People for Their Own Development

This Elmhirst lecture first discusses the features of the institutional environment which allow rural people in low income countries to design, plan and implement their own rural development. These are divided into two broad groups: the institutional environment for rural development (environment for the private sector, communities and civil society, local government, and sector institutions) and the many factors governing profitability of investment in agriculture. While in many poor countries the institutional environment has improved over the last 20 years, the most poorly performing countries still have by far the poorest environment for local government in the world. Within an empowering institutional environment, the rate of agricultural and rural development is determined by investments of many different types that in turn depend primarily on the profitability of agriculture. The paper discusses the large number of factors which determine profitability. Few of these are under the direct control of farmers or agricultural sector institutions, but depend on governance and investments in other sectors such as trade and transport. In many of the poorest countries there has been considerable improvement in macroeconomic management and sector policies over the past 20 years, but progress in international and intra-regional trade policies, in agricultural trade policies, in transport infrastructure, and in agricultural research and extension have been limited.Community/Rural/Urban Development,

The impact of formal finance on the rural economy of India

India has systematically pursued a supply-led approach to increasing agriculturalcredit. Its objectives have been to replace moneylenders, to relieve farmers of indebtedness, and to achieve higher levels of agricultural credit, investment, and output. India's success in replacing moneylenders has been outstanding. Between 1951 and 1971 their share of rural credit appears to have dropped from more than 80 percent to 36 percent. (It may have dropped to as low as 16 percent by 1981, but that estimate is disputed). Still, institutional credit is far from reaching all farmers. Only about a quarter of cultivators borrow, and no more than 2 percent take out long-term loans. Most small farmers have little access to credit, and long-term credit goes mostly to large farmers. Overall, farm debt has probably not increased sharply in real terms, as formal credit has primarily substituted for credit from other sources. Moreover, with the rapid growth of commercial banks in the 1970s, the system mobilized more deposits than it lent in rural areas in 1981. Of course, enhanced deposit services are a useful service of the rural population, but one must ask what has been the impact of heavy rural credit and better financial services on agricultural investment, production, and rural incomes. The authors'econometric results suggest that the rapid expansion of commercial banks in rural areas has had a substantially positive effect on rural nonfarm employment and output. The availability of better banking facilities appears to have overcome one of the obstacles to locating nonfarm activities in rural areas. Expanded rural finance has had less of an effect on output and employment in agriculture than in the nonfarm sector. The effect on crop output has not been great, despite the fact that credit to agricluture has greatly increased the use of fertilizer and private investment in machines and livestock. There has been more impact on inputs than on output, so the additional capital investment has been more important in substituting for agriclutural labor than in increasing crop output. But overall, rural credit and expansion of the rural financial system have had a positive effect on rural wages. Creating nonfarm jobs has apparently added more to total employment than the substitution of capital for labor has subtracted it in agriculture. So, wages have risen even for agricultural workers, albeit modestly. The supply-led approach to agricultural credit that has been pursued for three decades has clearly benefited current borrowers and farm households formerly indebted to moneylenders. It has also spurred fertilizer use and investment in agriculture. It has been less successful in generating viable institutions - and has failed to generate agricultural employment. The policy's costs to India's government have been high as portfolio losses associated with poor repayment ultimately have to be borne by the government or one of its institutions under optimistic assumptions. The benefits of the agricultural income are at best no more than 13 percent higher than the cost to the government of the extra agricultural credit. If assumptions about the cost of supplying the credit and about repayment rates are less optimistic, the social costs - and the costs to the government of providing the credit - would have exceeded the benefits in agricultural income. The expansion of commercial banks to rural areas paid off in nonfarm growth, employment, and rural wages. The question is: Could these benefits have been achieved without imposing agricultural credit targets on the commercial banks and credit cooperatives? Or did the commercial banks expand only because they were forced to lend to agriculture? The authors could not answer these questions with the data at hand.Banks&Banking Reform,Environmental Economics&Policies,Financial Intermediation,Economic Theory&Research,Agricultural Research

SOME STRUCTURAL CHANGES IN THE UNITED STATES AND JAPANESE ECONOMIES

This paper is an attempt to quantify some interaction effects among capital accumulation, population growth and sectoral technical change in economic development. We tried to find a balance in the difficult trade-off just mentioned. We built a simple dynamic general equilibrium model along neoclassical lines. It is an agricultural-nonagricultural two sector model of a closed economy. Due to its simplicity, causal chains are easily traced. But we do not pretend to capture a complete model of development and recognize that the parameters of the model may change over time, i.e., that there is structural change. Therefore no simulations are performed with the model. Instead, we tried to find parameter values for the model at various stages of the development of the Japanese and U.S. economies, and observe the model under widely different resource endowments between the economies and over time.International Development,

Explaining agricultural and agrarian policies in developing countries

Political outcomes - such as agricultural taxation, subsidization, and the provision of public goods - result from political bargaining among interest groups. Such bargaining is likely to be efficiency-enhancing and growth-enhancing when equally powerful interest groups - aware of the economywide budget constraint and know the economic implications of different policy options - participate, and when impartial institutions are available to enforce decisions. The greater the deviation from these conditions, the greater the potential for efficiency-reducing outcomes, the costs of which will generally fall disproportionately on politically underrepresented or powerless groups. Material conditions of agriculture production - such as spatial dispersion, seasonal work cycles, covariance of risk, and the associated market imperfections - exacerbate the difficulties faced by small producers to engage in collective action. So, despite being generally the economically most efficient form of production, family farmers'ability to counteract the political influence of rural elites and urban dwellers is extremely limited. Lack of independent institutions and clearly defined property rights - and the presence of organizational residues - not only reduce peasants'bargaining power but may also make it more profitable for powerful groups to prefer rent seeking to productive activities. How can these undesirable outcomes be avoided, and how can sustainable policy changes be initiated? Experience indicates that fiscal crises of the state, often triggered or aggravated by an external shock, can cause lasting changes of policies and institutions. By forcing the state to devolve some of its power in exchange for financial assistance to meet its immediate needs, such a crisis can give rise to the emergence of independent legal, political, and economic institutions that are maintained even once the crisis has subsided, External actors that provide resources in terms of crisis and at the same time enhance the scope for politically least vocal parts of civil society to participate in political discourse can have a significant impact on changing policy. The paper discusses in detail the implications for research as well as for policy advice.Labor Policies,Economic Theory&Research,Agricultural Knowledge&Information Systems,Banks&Banking Reform,Environmental Economics&Policies,Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Agricultural Knowledge&Information Systems,Health Economics&Finance

Characteristics and performance of settlement programs : a review

The studies and cases reviewed by the authors suggest that settlement programs are too often designed on the assumption that all settlers will or can succeed. This had led to too much centralized administration and rigid designs, rather than reliance on decentralized approaches, flexibility in implementation, support for spontaneous settlement, and reliance on the settler's own investment capacity. Collective forms of crop production have not worked. Cropland is best allocated to individual families whose land rights must be clearly defined as ownership or long-term leases. Farm sizes must be flexibly adjusted to skills, the availability of family labor, and the families'capital ownership. Settlers should therefore be allowed to sell or rent the land to other beneficiaries. If poor settlers are to benefit or succeed, settlement cannot be based on credit finance but must include grants. Paternalistic constraints on the choice of crops or technologies, marketing, or participation in the labor force have usually not been enforceable or have had negative effects.Agricultural Knowledge&Information Systems,Urban Housing,Banks&Banking Reform,Environmental Economics&Policies,Housing&Human Habitats

Die Wachstumsspirale in der Krise ; Ansätze zu einem nachhaltigen Wachstum

Im vorliegenden Text wird dargelegt, warum in die moderne Wirtschaft ein Wachstumszwang und Wachstumsdrang eingebaut sind. Wird eine globale minimale Wachstumsrate unterschritten, kommt es zur Krise