Agricultural policies and development : a socioeconomic investigation applied to Sri Lanka

World Bank Reprint Series: Number 191 Martha H. de Melo Agricultural Policies and Development: A Socioeconomic Investigation Applied to Sri Lanka Reprinted with permission from the Journal of Policy Modeling, vol. 1, no. 2 (May 1979), pp. 217-34.  Agricultural Policies and Development: A Socioeconomic Investigation Applied To Sri Lanka Martha H. de Melo,* World Bank This paper explores the interrelationship between agricultural policies and development by means of a dynamicaLly recursive, computable general equilibrium model applied to Sri Lanka. The agrcultural policies investigated include elimiination of the food subsidy, land reform, and technical change in agriculture. The goals considered are the levels and growth rates of GNP and emnployment, the distribution of income, and the real income level of the lowest income group. The study provides a quantitative assessment of the association between policies and goals and identifies the key economic mechanisms in this association. INTRODUCTION It is frequently argued that, to generate more rapid and more equitable growth, the poorest countries, characterized by a large agricultural sector, should (a) promote yield-increasing technical change in agricul- ture, (b) invest more heavily in agricultural infrastructure, (c) redistribute land and associated assets from large farmers to small farmers, (d) remove Consumer subsidies on staple foods, and (e) remove taxes on traditional agricultural exports. It is anticipated that these policies will, to varying degrees, raise rural incomes, increase employment, improve the balance of payments, and encourage industrial expansion and overall GNP growth. One is never sure, however, what the net effect of any one of these policies will be after economy-wide and intertemporal adjust- ments htave taken place. This study is an attempt to provide a quantitative assessment of the impact of these policies on multiple goals in an economy-wide model with intertemporal linkages. The country of application, Sri Lanka, is indeed a country to which these policies might be applied; and, as a relatively small and homogeneous country, it lends itself more easily to the aggregative characteristics of the analysis. It should be understood Address correspondance to Martha H. de Melo, The World Bank, 1818 H Street N.W., Washington, D.C. 20433. ' Any views expressed in this paper are those of the author and should not be attributed to the World Bank. The paper is based on my doctoral dissertation at the University of Maryland and has benefitted from the helpful advice of Irma Adelman, principal advisor, and Sherman Robinson. The computer time for the study was supported in full through the facilities of the Computer Science Center of the University of Maryland. Journal of Policy Modeling 1(2), 217-234 217