The transmission of cost inflation in agriculture with subsistence production: a case study of northern India
1981
De Janvry, A. | Kumar, P.
Extract: In this paper, we develop the analysis of marketed surplus response to factor price changes. We then estimate the elasticities of supply response and derived demands for factors for a set of farms in the Delhi Union Territory. These estimates are used to calculate the marketed surplus response to factor price changes and to simulate the impact of inflationary cost pressures on the marketed surplus. We then analyze the required product price adjustments necessary to compensate for cost push in order to reach different consumption and welfare goals. The main conclusion of our work is that, when the agricultural sector is still fundamentally oriented at home consumption with a marketed surplus which is consequently only a small fraction of total production, inflationary pressures on the cost side become amplified on the product side. Unless productivity changes are sufficiently high, the transmission of cost inflation in agriculture thus acts as an accelerator of inflation.
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