Agricultural research in an era of adjustment: policies, by Steven R. Tabor

By Steven R. Tabor

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Sample text

The simple representation of the economy in figure 1-1 will help guide the following discussion about targets and associated instruments. To grasp the essential elements of the argument, we can think of an economy as divided into two sectors, producing either tradable or nontradable goods. Page 8 Figure 1-1. Paths of Structural Adjustment: A Stylized View Tradable goods are an amalgam of exportable and importable goods whose domestic prices are determined by world market conditions, together with the country's trade and exchange rate policies.

For many countries, the success or failure of a structural adjustment program hinges on the policies that are formulated for the agriculture sector, and the sector's response to those policies. Agriculture is typically important for both export earnings and import substitution. If the production of tradables is to expand to meet debt-servicing requirements and to achieve a sustainable position in the external account, it is virtually obligatory that agriculture assume a central role in structural adjustment.

Nontradable or home goods are that part of the economy's production that does not enter international trade. As a result, domestic supply and demand determine their prices. Most agricultural output in developing countries can be classified as tradable. Even if some products are in reality not traded, the proportion of agricultural production consisting of tradable goods is much greater than the corresponding share of the nonagriculture sector. For this reason, there is little violence done by considering the tradable and nontradable sectors as corresponding, in the majority of cases, to the agriculture and nonagriculture sectors, respectively.

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