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,

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

The effect of formal credit on output and employment in rural India

This paper estimates the output, investment, employment and wage effect of institutional credit using district-level panel data from India. Using a two-stage model to distinguish demand for formal credit from supply, the authors conclude that increased formal credit has a positive effect on crop production, on the use of fertilizer, and on private investment in machines and livestock. However, the effect of expanded credit on crop output is small. Crop output improves more because of increased use of fertilizer than because of capital investments, which merely substitute for labor.Credit decreases farm employment, yet increases the real agricultural wage because of its overwhelmingly positive effect on rural nonfarm employment. In short, improved financial intermediation in rural India greatly improves rural nonfarm employment and output, has a modest effect on crop output, and tends to substitute capital investment for farm labor.Environmental Economics&Policies,Economic Theory&Research,Agricultural Research,Financial Intermediation,Banks&Banking Reform

Wealth, weather risk, and the composition and profitability of agricultural investments

Despite the growing evidence that farmers in low-income environments are risk-averse, there has been little empirical evidence on the importance of risk in shaping the actual allocation of production resources among farmers differentiated by wealth. The authors use panel data on investments in rural India to examine how the composition of productive and nonproductive asset holdings varies across farmers with different levels of total wealth and across farmers facing different degrees of weather risk. Income variability is a prominent feature of the experience of rural agents in low-income countries. The authors report evidence, based on measures of rainfall variability, that the agricultural investment portfolio behavior of farmers in such settings reflects risk aversion, due evidently to limitations on consumption-soothing mechanisms such as crop insurance or credit markets. The authors'results suggest that uninsured weather risk is a significant cause of lower efficiency and lower average incomes: a one-standard-deviation decrease in weather risk (measured by the standard deviation of the timing of the rainy season) would raise average profits by up to 35 percent among farmers in the lowest wealth quartile. Moreover, rainfall variability induces a more unequal distribution of average incomes for a given distribution of wealth. Wealthier farmers are willing to absorb significant risk without giving up profits to reduce production risk. Smaller farmers have to invest their limited wealth in ways that reduce their exposure to risk at the cost of lower profit rates. The authors found that at high levels of rainfall variability, differences in rates of profit per unit of agricultural assets were similar across classes of wealth. But over the sample range of rainfall variability, these rates of profit were always higher for the poorer farmers than for the wealthier ones, suggesting that the disadvantages of small farmers in risk diffusion are more than offset by their labor cost advantage.International Terrorism&Counterterrorism,Economic Theory&Research,Environmental Economics&Policies,Health Economics&Finance,Financial Intermediation

Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments

Farm Management,

A MICROECONOMIC APPROACH TO INDUCED INNOVATION

Invention possibilities are reformulated using research processes which have a cost and different implications for rates and biases of technical change. In the comparative static model a firm has the choice to build a plant of existing design or to improve it by research. The firm maximizes present value over the lifetime of the plant. Research costs and present value of capital and labor costs influence research mix and rate and bias to technical change. Controversies in the literature of induced innovation are discussed in terms of the model. A rise in labor costs does not necessarily lead to a more labor saving bias.Institutional and Behavioral Economics,

How infrastructure and financial institutions affect agricultural output and investment in India

How do the decisions of farmers, financial institutions, and government agencies interact and affect agricultural investment and output in a region - and to what extent are these"actors"influenced by a region's location and agroclimactic endowments (for example, rainfall or the soil's moisture-holding capacity). This paper presents an attempt to quantify the relationships between key factors, using district level time-series data from India.Economic Theory&Research,Agricultural Research,Financial Intermediation,Banks&Banking Reform,Environmental Economics&Policies

Attitudes Toward Risk: Experimental Measurement in Rural India

Attitudes toward risk were measures in 240 households using two methods: an interview method eliciting certainty equivalents and an experimental gambling approach with real payoffs which, at their maximum, exceeded monthly incomes of unskilled laborers. The interview method is subject to interviewer bias and its results were totally inconsistent with the experimental measures of risk aversion. Experimental measures indicate that, at high payoff levels, virtually all individuals are moderately risk-averse with little variation according to personal characteristics. Wealth tends to reduce risk aversion slightly, but its effect is not statistically significant.India, psychological experiments, risk aversion, semi-arid tropics