Meso-Economic Filters Along the Policy Chain: Understanding the links between policy reforms and rural poverty in Latin America

The policy reforms introduced in Latin America in the 1980s and 1990s have induced profound and beneficial changes in the overall productive structure of most Latin American countries, and particularly concerning the increased competitiveness and profitability of some agro-export activities. Yet, even if a relatively stable macroeconomic environment has been achieved, agricultural price distortions have been removed, and inefficient governmental agencies serving the sector have been dismantled, high levels of rural poverty remain in the region. What went wrong? How have the intended impacts of the reforms been transmitted to the rural sector, and how have farmers responded to the newly created incentive structure, and how has this influenced the observed poverty outcomes? Despite several attempts to introduce new dimensions to policy analysis, a consistent theoretical framework is still lacking capable of accounting for the various sources of policy and market failures leading to such unsatisfactory policy outcomes. The objective of this paper is to propose a framework aimed at developing a better understanding of the reasons of the failures of the past to inform the current policy debate. The proposed framework takes the moves from the theoretical debate on the importance of considering transaction costs and institutions in policy design and implementation. It develops a synthesis of macro-, meso- and micro-economic perspectives, that focuses on the roles of the structural and institutional factors mediating the effects of policy reforms as they “trickle down” to rural households. Such synthesis is realised through a conceptualisation in three levels of filters intervening at various level of the “policy chain”, and by developing a model linking those to the household decision-making level. The paper is organised into four parts. Part one provides stylised background information about policy reforms and rural poverty outcomes in Latin America. In the second part two main bodies of literature are reviewed: a) the “meso-economy” level of market mechanisms, institutional arrangements, and the administrative procedures mediating the “public” provision of goods and services; and b) the “micro-economy” level of rural farm household models. In the third part, the insights provided by these two bodies of literature are used to develop an analytical framework integrating the macro-economy to agricultural household models, as mediated by the mesoeconomy links. Finally, in the fourth part some policy implications are drawn and research guidelines proposed.