Rural farm/non-farm linkages are critical in shaping the impacts of policy and market changes on rural economies. In towns and villages, commodity and factor markets transmit the impacts of exogenous shocks from directly affected households to others in the local economy, creating local income multipliers. Market linkages between towns and villages then diffuse local impacts into larger economies such as regional ones, setting in motion income multipliers and local general-equilibrium feedbacks there, and possibly generating feedbacks to the village or town originally affected by the income shock. Understanding the nature of farm/non-farm growth linkages is a first step in designing policies and programmes to exploit these linkages and promote broad-based economic growth in least-developed countries (LDCs), and rural industrialization.
The range of activities and income sources embodied in the rural non-farm economy (RNFE) depends on definitions of “rural” and “urban”. One extreme is to consider urban areas as major cities: in this case, the urbanization of rural areas associated with industrialization is regarded as rural industrialization rather than change from rural to urban areas (Otsuka and Reardon, 1998). In other definitions, urban areas include small and medium-sized cities. The RNFE comprises a wide range of activities and sources of income, from local rural non-farm activities and local labour markets to involvement of villages or towns in regional, national and international markets for inputs, products and labour.
The extent to which linkages transmit the impacts of changes in rural household incomes across sectors is an empirical question. Two extremes are possible. At one extreme, households, villages or towns directly affected by these changes may act as enclaves, supplying few inputs and demanding few goods from others in the local or regional economy. This is the case of many villages in LDCs, where exogenous income changes such as income transfers, including migrant remittances, influence production, income and demand in the households concerned, but create few farm or non-farm income linkages within the village. In this case, a regional analysis is required to uncover rural income multipliers.
At the other extreme, the directly affected households may be closely integrated with local product and factor markets, supplying inputs to local production and demanding locally produced non-tradables. In this case, exogenous policy or market shocks may stimulate incomes in the directly affected households and in others in the local economy. If expenditure linkages favour non-farm goods, and if the supply response in non-farm production is elastic, transmission of policy and market shocks through local economies and across sectors may be substantial. The resulting farm/non-farm income linkages may be manifested primarily in a local economy if there is an important local non-farm sector producing non-tradables, or primarily between local and regional or national economies if village income changes stimulate demand for non-farm goods in urban centres.
In either case, resource and technological constraints may be instrumental in determining the magnitude and direction of the impacts of exogenous policy or market changes on village and town economies. If villages are defined as conglomerations of fewer than 10 000 habitants, manufacturing activities are generally absent in villages in Mexico, as in most LDCs. Village populations, however, carry out local non-farm activities and have rural non-farm incomes; their economies are linked with the outside world through regional product and labour markets.
This chapter discusses the ways in which linkages between the farm and the non-farm sectors at the village level can be studied; the second section proposes two methodologies for doing so. First, a village-town social accounting matrix, or SAM, is applied to five villages of medium and small farmers and to a “mini-region” or municipality in rural Mexico. The third section describes the village and town data. Findings from village and village/town SAM multiplier models are reported in the fourth section. In the fifth section, the second methodology, a village/town CGE model, is estimated and used to examine the impacts of exogenous income changes on the economy of the mini-region. Discussion of policy implications of the results and issues for future research conclude the chapter.
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[1] The authors thank George
Dyer, Javier Becerril, Virginia Evangelista, Xochitl Juarez and Mara Ruiz for
their superb research assistance. |
