Dynamic Modelling of a Three-Sector Transitional Economy
AbstractRural industry provides inputs and markets for agriculture, which in turn provides inputs and markets for rural industry. As the mutually supportive linkages between rural industry and agriculture develop, the size of both sectors increases. Under certain conditions rural industry grows more rapidly than agriculture, resulting in the structural transformation of the rural sector. But the growth of rural industry may hurt the state-owned industrial sector if both sectors compete for similar resources and product markets. To protect their state enterprises, transitional economies have at times suppressed the growth of non-state rural industries. This can hurt the economy overall. We show how the growth rates of agriculture and rural industry may decline, and, surprisingly, how the growth of state industry might fall if rural industry is suppressed. This is especially so if agriculture supports state industry. By suppressing rural industry, agriculture is hurt. The decline in agriculture then hurts state industry, undermining the objective of protecting state industry. Depending on the magnitude of the relevant impacts, intervention to protect state industry may or may not be optimal, leaving governments with difficult policy decisions.
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Bibliographic InfoPaper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 01/01.
Length: 28 pages
Date of creation: 30 Oct 2001
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More information through EDIRC
dynamics; intersectoral interactions; transitional economies;
Find related papers by JEL classification:
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-01-22 (All new papers)
- NEP-DEV-2002-01-22 (Development)
- NEP-TRA-2002-01-22 (Transition Economics)
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