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Role of terms of trade in Indian agricultural growth: a national and state level analysis

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  • Hazell, P. B. R.
  • Misra, V. N.
  • Hojjati, Behjat

Abstract

Using time series data, this paper analyses the relative contributions of terms of trade and non-price variables in explaining agricultural growth in recent decades in India. Agricultural growth is largely explained by expansion of irrigation, (which in the model is also a proxy for HYVs and other capital investments), and, until the 1970s, by increases in the net cultivated area. Agricultural output is inelastic, and is becoming increasingly more so over time. The terms of trade was not an important factor in explaining past growth. Even during the late 1960s and early 1970s when the terms of trade improved by 18 percent for agriculture, they only accounted for 15 percent of the growth in output. Increases in agricultural output are also found to worsen the terms of trade for agriculture, despite government attempts to control prices. The results highlight the importance of further investments in agricultural research, extension, irrigation and other supply-enhancing inputs if the ongoing policy reforms in India are to translate into more rapid and sustained agricultural growth.

Suggested Citation

  • Hazell, P. B. R. & Misra, V. N. & Hojjati, Behjat, 1995. "Role of terms of trade in Indian agricultural growth: a national and state level analysis," EPTD discussion papers 15, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:eptddp:15
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    References listed on IDEAS

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    1. Sidhu, D. S. & Singh, A. J., 1979. "Domestic Terms of Trade and Economic Development in India," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 34(4), October.
    2. Krishna, Raj, 1982. "Some Aspects of Agricultural Growth, Price Policy and Equity in Developing Countries," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 18(3), pages 1-42.
    3. Romeo M. Bautista, 1989. "Domestic Terms of Trade and Agricultural Growth in Developing Countries," International Economic Association Series, in: Nurul Islam (ed.), The Balance between Industry and Agriculture in Economic Development, chapter 1, pages 17-38, Palgrave Macmillan.
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    Cited by:

    1. Kerr, John M., 1996. "Sustainable development of rainfed agriculture in India:," EPTD discussion papers 20, International Food Policy Research Institute (IFPRI).
    2. Akber, Nusrat & Paltasingh, Kirtti Ranjan & Mishra, Ashok K., 2022. "How can public policy encourage private investments in Indian agriculture? Input subsidies vs. public investment," Food Policy, Elsevier, vol. 107(C).

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