External Finance: A Necessary Component in Growth Projections for Southern Agriculture

Literature is replete with studies projecting the performance of agriculture to 1980, 1985 and the year 2000. These studies are usually based upon a dynamic certainty econometric model which, in turn, either assumes or projects annual rates of growth in the stock of producer capital over the time period covered by the study. In two recent assessments of the state of the art King [12] and Tweeten [27] cited several needed changes in our approach to sector econometric projections models, which should lead to increases in accuracy and consistency of future projections. Among those listed were incorporation of risk and uncertainty associated with expected outcomes and integration of disparate models into an aggregate sector projections system. Both of these authors failed, however, to identify the lack of financing considerations in present sector projections models. For example, those studies that sought to explain aggregate demand for farm producer capital when projecting the capital stocks associated with future output levels ignored the implicit rental price of capital and other variables suggested by finance and risk theory.