GETTING AGRICULTURE MOVING - DO MARKETS PROVIDE THE RIGHT SIGNALS

Political discrimination has often pushed the domestic value of agricu lture in developing countries below its value in markets at the border . This paper seeks to explain the reasons why border prices themselves undervalue the linkages that agriculture has to economic growth in th e early stages of development. If agriculture is critically important to stimulating and sustaining rapid economic growth, those countries t hat fail to correct this discrimination exact a heavy toll in economic performance. Furthermore, the poorest countries will suffer the most. Agricultural development and development of the non-agricultural econ omy are closely linked. The traditional market-mediated linkages form the core of economic analysis of the role of agriculture in economic d evelopment: providing labour for an industrial work-force, food for an expanding population with higher incomes, savings for industrial inve stments, markets for industrial output, export earnings to pay for imp orted capital goods, and raw materials for agro-processing industries. A second category of linkages is not well mediated by market forces, even when markets are working well. The impact of agricultural growth on the rest of the economy through non-market linkages can be traced u sing a simple growth-accounting framework that examines contributions to the labour force, capital investment and the productivity with whic h these two physical factors are utilised. Several linkages stand out as likely to be important and potentially measurable because they draw on the efficiency of decision making in rural households, the low opp ortunity cost of their labour resources, the opportunity for farm inve stment without financial intermediaries, the potential to earn high ra tes of return on public investments that correct for urban bias, the c ontribution of food price stability to increased efficiency in investm ent decisions, and the impact of growth in food production on widespre ad improvement in nutrient intake and labour productivity. Each of the se factors alone, as public investment and favourable policy stimulate growth in the agricultural sector, should cause an increase in the ef ficiency of resource allocation and thus higher total factor productiv ity. Several of these mechanisms will also serve to speed factor accum ulation by increasing the savings rate or improving factor mobility.