http://worldcat.org/entity/work/id/41839472

Agriculture and the macroeconomy

August 1998 This paper surveys the literature on the interaction between agriculture and the macroeconomy in both industrial and developing countries, identifying what the authors believe to represent its most significant contributions and shortcomings. Based on an economywide perspective, this paper begins with a discussion of the bias against exports and agriculture that characterized the economic literature and the development strategies in many developing countries after World War II. This is followed by an analysis of how the macroeconomic environment affects agricultural price incentives. Specifically, the paper discusses how policies concerning industrial protection, exchange rates, and interest rates and other fiscal policies can strongly influence the economic incentives for agriculture compared with other sectors, identifying the most relevant literature and alternative approaches used on this issue. It then proceeds to examine how the real exchange rate can be affected by exogenous shocks, such as the foreign terms of trade, with emphases on the Dutch Disease phenomenon and agriculture. The paper next examines the influence of interest rates on incentives in agriculture, arguing that, surprisingly, this has been a neglected area in the literature. The paper explores the effects on agriculture of structural adjustment programs implemented since the early 1980s in developing countries. The final section surveys the literature on agriculture and the macroeconomy in industrial countries, focusing on the impact of the exchange rate on export competitiveness in the United States, the cost of agricultural protection for the overall economy in Europe and Japan, and the increased importance of fluctuations in money markets for the farm sector and the additional instability they generate. This paper-a joint product of Trade, Development Research Group, and the Rural Development Department-will be published in B. Gardner and G. Rausser, eds., Handbook of Agricultural Economics, North Holland Publishers. Maurice Schiff may be contacted at [email protected].

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