Abstract
Chapter 2 Review of Literature
2.4 Effective Linkage Study (Impact Analysis) to minimise the Divide
(1979); Alagh et al. (1980) and Saxena and Bhatnagar (1987) etc. for different purposes (Dhawan and Saxena, 1992). According to these studies, sectoral relationships did not improved at the desired pace in the country. Prakash et al.
(1998) have done the study for the appropriate development strategies for the North Eastern Region and highlighted the lop-sided nature of the industrial structure of the regional economy. Goswami (1994) found strong linkages of agriculture sector with other sectors in Meghalaya. A study carried out by the Department of Economics, Gauhati University on behalf of the Planning and Development Department, Government of Assam, based on the Input-Output Table, 1982-83 for Assam found weak linkages among the primary, secondary and tertiary sector of the economy.
raw materials, especially perishable agricultural products. These industries would help in reducing post-harvest losses and wastes as well as in using byproducts more efficiently. “Food Processing industry is a ‘sunrise’ industry and it has the potential to dramatically improve rural livelihood opportunities and employment, to bridge the rural-urban divide and to improve farming methods and practices”
(The Economic Times, 26th March, 2010).
With a large number of people living in rural areas, it makes a strong case for agricultural-development-led industrialisation (Adelman, 1984). Recent research suggests that there is a more fundamental symbiotic relationship between agriculture and other sectors, to such an extent that when agriculture does well, so does the rest of the economy, and vice-versa (Timmer, 1988; Haggblade, Hazel, and Brown 1989; Vogel, 1994; Suryahadi et al., 2006).
According to Suryahadi et al. (2006), several types of sectoral linkages may arise from agriculture sector. The most well-known linkages are production and distribution linkages. A production linkage occurs when a sector produces output which is then used as an intermediate input by another sector. There are two types of production linkages: backward and forward linkages. Meanwhile, distribution linkages act as an intermediary between two sectors. A farm may supply its output directly to a food-processing industry, but it may also sell its output to a trader who then re-sells it to the food-processing industry. In this case, the trader plays the role of a distribution linkage. In general, a distribution linkage provides two types of services. First, it provides location value added by transporting a good from one place to meet its demand in another place. Second, it provides time value added by storing good to meet its demand in the future.
Another type of linkage is consumption linkage. This linkage refers to the consumption demand from households for the output of a sector. The extent to which an increase in income in a particular sector induces an increase in income of the whole economy is referred to as the sectoral growth multiplier. Hence, the agricultural growth multiplier quantifies the impact of a certain increase in income in the agricultural sector on the growth of income in other sectors. Earlier, it was thought that this multiplier was small because agriculture was considered a low- linkage sector. This conclusion was later proved wrong because it only looked at
production linkages. Once consumption linkages were taken into account, the multiplier turned out to be quite large (Haggblade et al., 1989).
Apart from production and consumption linkages, there are other linkages such as investment linkage. For example, part of increased income in the agricultural sector may be saved. These savings may constitute an important source of funds for investments in non-agricultural sector. Another possible cross-sectoral linkage in a rural economy is a transfer linkage. This type of linkage occurs whenever a household transfers part of its income to another household for purposes other than production, consumption, or investment (Suryahadi et al., 2006).
Ramadhyani (1984) mentioned that the establishment of a large number of major industrial projects in less developed region has not had any significant impact on the industrial or overall economic growth of these regions and has thus failed in achieving the regional redistributive objective of Central Planning.
Among the reasons for this failure has been the lack of integration of these projects with the economies of the regions. As a result of this there has been a substantial leakage of growth impulses or linkage effects out of the region. Although these aspects have received substantial consideration in regional studies in India, the focus has been restricted to the determination of linkages of aggregated industry groups or sectors. The linkage effects of individual firms or plants have received insufficient attention. Taylor and Adelman (2006) mentioned that understanding of the likely impacts of policy, market changes on rural incomes requires understanding of micro responses in household-farms, the complex linkages among household-farms within villages, and the linkages between villages and the outside world (Taylor and Adelman, 2006). Therefore, sufficient attention is required on the impact analysis of any sector on others.
For impact analysis and estimation of sectoral growth multiplier, the studies can be broadly grouped into three types: (i) studies which use micro-econometric approach, (ii) studies which employ macro-econometric approach, and (iii) studies which utilise an input-output table, social accounting matrix, or computable general equilibrium modeling. Each of these approaches has its advantages and disadvantages (Suryahadi et al., 2006). Psaltopoulos et al. (2006) measured the
impact of rural areas on urban areas and vice-versa in Greece with the help of social accounting matrix.
Social Accounting Matrix (SAM) is found as the appropriate tool to measure the existing linkages and for impact analysis (Lewis and Thorbecke, 1992;
Parikh and Thorbecke, 1996; Sivakumar et al., 1999; Roberts, 2000; Xiaoping et al., 2005; Suryahadi et al., 2006; Agaje, 2008; Subramanian, 2007; Subramanian and Qaim, 2008). SAM measures social effects of production processes along with the economic effect. It includes not only inter-industry transactions but also payments to factors of production, expenditures of households, transfers to and expenditures by government, and transactions with the rest of the world (Subramanian, 2007). The SAM provides a useful framework for analysing the linkages among the different sectors of any economy. Because, all the inter- linkages between the sectors are taken into account, it measures not only the direct effects, but also the indirect and induced effects.
SAM has two principal objectives: First, organisation of information about the economic and social structure of an economy in a particular year; Second, providing a statistical basis to model the economy capable of generating results for policy evaluation (Boisvert, 2002)