Peasant Supply Response and Macroeconomic Policies: Cotton in Tanzania

This article provides empirical evidence for the importance of both price and non-price related government policy towards cotton production in western Tanzania since the 1950s. First, the effects of export taxation, marketing board inefficiencies and overvaluation on the level of prices paid to the producer are separated. Second, econometric analysis shows that no aggregate supply response exists for cotton: increases in cotton production are at the cost of food production. Third, from the end of the 1970s until the mid-1980s a standard specification with prices as the main explanatory variable is dominated by a specification including such macroeconomic variables as inflation taxation and rationing. Also, a negative aggregate supply response can be observed. This evidence supports the conclusions reached by D.L. Bevan et al. (1989) on the effects of rationing on peasant production. Finally, it is shown that a stagnation of yield has set in since the 1970s, compared with large yield growth until the end of the 1960s. The results suggest that the bias against export crops after the Arusha Declaration in 1967 not only affected production through prices but also affected technological progress. App., bibliogr., notes, ref., sum.

Title: Peasant Supply Response and Macroeconomic Policies: Cotton in Tanzania
Author: Dercon, Stefan
Year: 1993
Periodical: Journal of African Economies
Volume: 2
Issue: 2
Period: October
Pages: 157-194
Language: English
Geographic term: Tanzania
External link: http://jae.oxfordjournals.org/content/2/2/157.full.pdf
Abstract: This article provides empirical evidence for the importance of both price and non-price related government policy towards cotton production in western Tanzania since the 1950s. First, the effects of export taxation, marketing board inefficiencies and overvaluation on the level of prices paid to the producer are separated. Second, econometric analysis shows that no aggregate supply response exists for cotton: increases in cotton production are at the cost of food production. Third, from the end of the 1970s until the mid-1980s a standard specification with prices as the main explanatory variable is dominated by a specification including such macroeconomic variables as inflation taxation and rationing. Also, a negative aggregate supply response can be observed. This evidence supports the conclusions reached by D.L. Bevan et al. (1989) on the effects of rationing on peasant production. Finally, it is shown that a stagnation of yield has set in since the 1970s, compared with large yield growth until the end of the 1960s. The results suggest that the bias against export crops after the Arusha Declaration in 1967 not only affected production through prices but also affected technological progress. App., bibliogr., notes, ref., sum.