Government Failures in Development

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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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Document Summary

this often didn"t happen because governments spent the money: overvalued exchange rates make the cost of importing cheaper and exporting more expensive. usually importer countries overvalue their exchange rates: low priced foods prevents food riots in urban areas, 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 www. notesolution. com: governments intervene in market for manufactured goods, governments subsidize the price of inputs, governments seek to maximize welfare. In order to produce higher gdp, a nation should abandon their development of agricultural goods and shift to manufactured goods: government responds to political demands. urban dwellers want secondary goods to be high and agricultural prices to be low. large scale commercial farmers are favoured: government try to maintain political control.

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