Discussion Points For Chapter

• Macroeconomic policy strongly influences both the incentives for agricultural production and the real incomes of rural households through its effects on real or relative prices, or the inter-sectoral terms of trade in an economy.

• Macroeconomic policy also influences the incentives for agricultural exports and can establish a framework that is conducive to rural finance and investment.

• From the viewpoint of agricultural development policy, the most important instruments of macroeconomic policy are exchange rate policy, trade policy, tariff policy, taxation policy, fiscal expenditure policy, monetary policy and the regulatory framework.

• Falling real agricultural prices are injurious to production and rural standards of living. In the long run (as pointed out in Chapter 1), a policy of lowering domestic food prices worsens the problem of rural poverty and reduces agriculture's ability to contribute to the economy's overall growth rate.

• Both explicit and implicit subsidies have played important roles in agricultural policy in the past, sometimes for the purpose of offsetting biases against agriculture in other areas of macroeconomic policy. However, often such subsidies are regressive in their effects over income classes.

• Other arguments against subsidies include the following: they tend to be allocated to the least competitive industries, subsidies are hard to eliminate in the future, their fiscal cost to the nation can be high, they encourage rent-seeking behavior, they reduce the possibilities of developing institutions that are viable in the long run without subsidies, the expectation of obtaining subsidies can lead to the deferral of worthwhile projects and, especially in the case of subsidized credit, they can foster counterproductive economic attitudes among the beneficiaries of the subsidies.

• Arguments in support of subsidies include the following: they can be crucial for reducing poverty, they are justified when they compensate for environmental externalities, when used in a transitory way they can help facilitate a transition to an economic regime that is less dependent on subsidies in the long run, they are necessary in cases of natural disasters, and they can compensate for instances of imperfect information and market failures.

• Given agriculture's unique contributions to growth and poverty alleviation, and the social costs of rural-urban migration, there are solid arguments in favor of generalized support for the sector.

• Basic questions for policy makers in each country include the amount of such sectoral support and the channels through which it is extended, bearing in mind efficiency considerations and the associated costs to other sectors.

• Historically, attempts to reduce poverty have been carried out via programs and investment projects but there has been little emphasis on designing growth policies for poverty reduction. In agriculture, there are many examples of policies whose primary beneficiaries would be the poor.

• Gender bias is pervasive in legislation, programs and projects in developing countries. Such biases are not only unfair but they also reduce a country's capacity for economic development.

• Studies have shown that greater attention to the education of women increases a country's nutrition levels and economic growth rate, and that providing rural women with greater control over farm inputs and decisions increases farm yields.

• Many projects funded by international agencies also suffer from gender bias. A starting point for reducing gender bias is to carry out a gender analysis at the beginning of the design stage of each project and program.

• There are many State-owned enterprises in developing countries, but often they represent a drain on fiscal resources and a diversion of the country's energies away from more productive kinds of investment. Provided that concerns about the potential creation of private monopolies and oligopolies can be surmounted, privatization often improves a country's growth prospects.

• The manner in which privatization is carried out is crucial. A strong regulatory framework is a prerequisite for successful privatization. In addition, it needs to be borne in mind that in many developing and transitional economies the private sector may not have, in the short and medium run, the financial or managerial capacity to assume control over many State-owned enterprises. In some cases, transitional subsidies can play a role in the privatization process, particularly if large numbers of farmers or citizens are expected to become shareholders in the newly privatized facilities.

• Inadequate legal frameworks and inconsistent enforcement of laws is a major impediment to economic development. The basic concepts of ownership and contractual obligations require strong legal support in a market economy.

• The legislative framework also is fundamental in regard to forms of economic association, gender, land tenure, commercial relationships, finance and collateral, bankruptcy provisions, consumer protection and other areas.

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