By Steven R. Tabor
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Extra resources for Agricultural research in an era of adjustment: policies, institutions, and progress
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.
Above all, however, one must look to the type of longer-term strategy that the country had been pursuing. This will often help explain why an external shock had a greater or lesser effect. Furthermore, it will influence the type of policy response that is both politically feasible and economically appropriate. Finally, it will condition the outcome of any adjustment policies that a country implements. An important issue is whether to consider the causes of the imbalances that gave rise to the need for stabilization and adjustment policies (Kahn and Knight 1981).
Higher taxes, reduced public spending, and a rise in real interest rates all act to reduce real domestic spending. These policies do not necessarily reduce the output of tradable goods; rather, they cut domestic consumption of tradables as real spending comes into line with domestic income. This improves the trade balance. Nevertheless, the decline in aggregate demand can result in marked reductions in the output of nontraded goods. If, in the short run, prices of nontradable goods are fully flexible downward, the effect of a reduction in absorption will be to create an initial condition of excess supply in the home goods market.
Agricultural research in an era of adjustment: policies, institutions, and progress by Steven R. Tabor