Exploring the impact of selective interventions in agriculture on the growth of manufactures in Indonesia, Malaysia, and Thailand

With few exceptions industrial policy explanations of the industrial export successes in East Asia are notably silent on the role of agriculture in industrial development. Yet industrial growth can falter if agriculture fails to supply sufficient food at low stable prices, earn foreign exchange rather than use it, release labor to manufacturing, finance the growth of industry, and stimulate local demand for the products of industry. This positive role of agriculture in industrial development suggests that selective interventions in agriculture might well constitute an important part of 'selective interventions explain growth' stories in East Asia. This possibility is explored by empirically analyzing the role of selective interventions in rice agriculture on the growth of manufactures in Indonesia, Malaysia, and Thailand. Along the way, consideration is also offered of the impact of agricultural growth more generally on the growth of manufactures. The argument is made in three steps. To begin with, the selective nature of interventions by governments in the rice economies of Indonesia, Malaysia, and Thailand is outlined. This is followed by demonstrating that rice price stabilization and self-sufficiency objectives, rather than redistribution objectives, dominated rice price policies in Indonesia, Malaysia, and Thailand, at least through the early 1980s. Following this, a simple growth accounting framework is used to demonstrate that stabilization of rice prices and growth of agriculture more generally contributed to manufacturing growth in Indonesia, Malaysia and Thailand. The paper closes by considering the implications of these findings for industrial policy explanations of manufacturing growth and the growth of exports of manufactures in the second tier NIEs of Southeast Asia. Copyright © 2002 John Wiley & Sons, Ltd.