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Lecture

Government Failures in Development

3 Pages
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Department
Political Science
Course Code
POL201Y1
Professor
Sophia Moreau

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POL201: Politics of Development
November 1, 2010
“Government Failures in Development
Governments in Africa undermine the market because they demand high
production but dont change prices
Elements of agricultural policy
o Cost of inputs: fertilizer, seeds, irrigation
o Cost of outputs: what farmer is producing
o Cost of secondary/manufactured goods
Government intervention
o Cost of inputs goes down
o Cost of manufactured goods goes up
o Cost of outputs goes down
Monopsony
o Governments buy the crops of farmers and they sell it domestically or
interntionally
o There is a set selling price that farmers have to abide by
o Government usually sell crop domestically for a lower price as compared
to international market
! The government keeps the difference
! Ex. On the international market, cocoa is $5 but they sell it
domestically for $3 and keep the remaining $2
o Governments justify their Monopsony due to volatile agricultural prices
o The profit that governments keep is used to cushion the blow when
international prices goes down
! This often didnt happen because governments spent the money
o Overvalued exchange rates make the cost of importing cheaper and
exporting more expensive
! This directly impacts the agricultural sector
! Usually importer countries overvalue their exchange rates
o Low priced foods prevents food riots in urban areas
o Food crops are sold privately while cash crops are sold abroad
! The government has a storage of food and floods the food crop
sector in order to control prices
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Description
POL201: Politics of Development November 1, 2010 Government Failures in Development Governments in Africa undermine the market because they demand high production but dont change prices Elements of agricultural policy o Cost of inputs: fertilizer, seeds, irrigation o Cost of outputs: what farmer is producing o Cost of secondarymanufactured goods Government intervention o Cost of inputs goes down o Cost of manufactured goods goes up o Cost of outputs goes down Monopsony o Governments buy the crops of farmers and they sell it domestically or interntionally o There is a set selling price that farmers have to abide by o Government usually sell crop domestically for a lower price as compared to international market The government keeps the difference Ex. On the internationa
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