The Role Of Transactions In Kind In Developing Economies

The paper is concerned with non‐monetized transactions which are dimensionally important in developing countries. The notion of degree of monetization attaches to all real flows. It is necessary to analyze non‐monetized transactions in order to a have a better understanding of the producing and consuming activities of households which contribute a large part of national product in less developed countries. Among different non‐monetized flows, particular attention is paid to the use of the output of own production for different purposes. A survey of Indian information on the degree of non‐monetization shows that it is different for different flows: highest for consumption, intermediate for current inputs and lowest for investments. Cross section Indian data indicate that the degree of non‐monetization is expected to fall with the improvement in the average household expenditure and urbanisation but it may rise if development occurs largely through agricultural improvement. Some of the Indian findings may apply to other developing countries as well. Normally, estimates of expenditure elasticities based on cross section data are obtained from consumption expenditure on a particular item (e) and the aggregate consumption expenditure (E) without going into the question of the degree of non‐monetization of either element. Since traditional models of consumer behaviour apply only to the relation between money expenditure on a particular item (em) and the aggregate money expenditure (Em), it is suggested that the relation between e and E should be broken down into relations between (i) em and Em, (ii) ek and Ek where these are the corresponding kind elements and (iii)among E, Em and Ek. Some estimates of elasticity based on this scheme are presented indicating that the procedure is reasonable and suggesting that this type of analysis would probably furnish a suitable framework for answering relevant questions in the field.