Do Agricultural Marketing Laws Matter for Rural Growth? Evidence from the Indian States

This article examines effects of the regulatory framework of post-harvest agricultural markets on agricultural growth across Indian states over the period 1970-2008. We propose a new measure that captures various legislative dimensions of a key ‘Act’ - the Agricultural Produce Markets Commission (APMC) Act and Rules - governing the agricultural markets, evolved from the dismal colonial history of India, and use this measure to estimate growth models using panel methods. We have applied Fixed-Effects, Feasible Generalized Least Squares, and Fixed-Effects Instrumental Variable models to the panel data to address the endogeneity associated with the regulatory framework. Our results show that the Act significantly promotes not only agricultural growth but the use and the adoption of agricultural technology. Evidence presented suggests that a policy to remove market regulation rather than advancing effective ones would fail consequentially to draw investments and improve agriculture growth.