Diversification and International Trade

We have struggled mightily with trying to understand the deeper meaning of our assigned title. What are the critical issues linking diversification of agriculture and international trade? Are they competitive, or even antagonistic, concepts in the broader context of food security and agricultural development? Are they complementary and synergistic and, if so, how? Or are they two ships passing in the night which have little if any linkage? We share our problem in searching for a conceptual framework for the paper with you because we are still not sure we have got it right. We begin with a stylized review of conventional wisdom regarding diversification as a desirable strategy for agricultural development. We then note that much of the agricultural development literature assumes, implicitly or explicitly, a closed or at least closely managed economy. We then ask the question, what happens if you open the economy? Here we use a simple three-good trade model to explore the consequences for the agricultural sector of an open economy setting. We look at the effects on production, consumption and trade as well as the implications for price and income variability and overall economic performance. We then return to the two supposed advantages of a policy of diversification - expanded sources of growth and employment and use as a risk management tool - and ask a basic question: in a world of economy-wide reforms, including trade liberalization, deregulation and privatization, is agricultural diversification a relevant policy objective? To anticipate our answer, we conclude that diversification as a policy goal is not relevant. Those of you who came only for the bottom line can now leave; those who want to know why are invited to stay!

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 Record created 2017-04-01, last modified 2017-04-26

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