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This paper attempts to explain the terms of trade adjustment and the process of capital accumulation in a monetary model of sectoral interlinkage under rational expectation. The paper utilises a very standard dual economy framework in which industry and agriculture are two distinct sectors of production. Agriculture production is supply constrained. This may arise due to fixed endowment of land, weather condition etc. On the other hand, employment and output in the industrial sector are determined on the basis of profit maximisation in the presence of wage indexation. The asset structure of the economy includes the stock of primary commodities as one form of asset holding. Since the stock of agricultural commodities is one of the financial assets, its demand is subject to speculation which may entail fluctuating agricultural prices. Many factors have effects on fluctuating agricultural prices. These include monetary shock, parametric changes in agricultural production, changes in government expenditure etc. In this paper we have discussed the comparative static effects of parametric changes of these factors. The paper shows that the short run and long run effects of any particular shock are quite different, not only quantitatively, but also qualitatively. Accordingly, the policy message of the paper is that the short run response may not be a reliable guide to the design of policy.

Keywords: industry-agriculture interlinkage ; capital accumulation ; terms of trade dynamics

Subject(s): Agribusiness

Agricultural Finance

Demand and Price Analysis

Financial Economics

International Relations/Trade

Production Economics

Productivity Analysis

Issue Date: 2013-12

Publication Type: Journal Article

DOI and Other Identifiers: 1418 2106 (Other)

2063 0476 (Other)

PURL Identifier: http://purl.umn.edu/161084 Published in: Studies in Agricultural Economics, Volume 115, Number 3 Page range: 157-165

Total Pages: 9

Note: http://dx.doi.org/10.7896/j.1317

Record appears in: Research Institute of Agricultural Economics > Studies in Agricultural Economics

Autor: Sengupta, Jonaki ; Nag, Ranjanendra Narayan ; Goswami, Bhaskar

Fuente: http://ageconsearch.umn.edu/record/161084?ln=en

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