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Open Economy Macroeconomics of Sectoral Interlinkage in a Developing Country

Author

Listed:
  • Pia Ghoshal
  • Bhaskar Goswami
  • Ranjanendra Narayan Nag

Abstract

The article considers dual economy interlinkage between a capitalistically organized industrial sector and an agricultural sector. We construct a structuralist model of sectoral interlinkage to examine importance of the agricultural sector in a developing economy. We take agricultural output as fixed which, however, can change due to technological progress. The employment and output in the industrial sector are determined on the basis of profit maximization in presence of wage indexation. In this framework, under the assumption of fixed exchange rate regime, we examine the comparative static effects of rise in food production, rise in speculative hoarding of food and devaluation on macroeconomic variables, namely, industrial employment, output and inflation. The model has also been modified to consider effects of policy changes under flexible exchange rate regime.

Suggested Citation

  • Pia Ghoshal & Bhaskar Goswami & Ranjanendra Narayan Nag, 2015. "Open Economy Macroeconomics of Sectoral Interlinkage in a Developing Country," Foreign Trade Review, , vol. 50(4), pages 250-262, November.
    • Handle: RePEc:sae:fortra:v:50:y:2015:i:4:p:250-262
    DOI: 10.1177/0015732515598588
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    References listed on IDEAS

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    1. Ranjanendra Narayan Nag & Partha Pratim Ghosh, 2003. "Industry-Agriculture Interlinkage, Agricultural Trade Liberalization and Supply Constraints: A Post WTO Perspective," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 38(2), pages 235-251, July.
    2. Cardoso, Eliana A., 1981. "Food supply and inflation," Journal of Development Economics, Elsevier, vol. 8(3), pages 269-284, June.
    3. Dutt, Amitava Krishna, 1986. "Stock equilibrium in flexprice markets in macromodels for less developed economies : The case of food speculation," Journal of Development Economics, Elsevier, vol. 21(1), pages 89-109, April.
    4. Buffie, Edward F., 1986. "Devaluation, investment and growth in LDCs," Journal of Development Economics, Elsevier, vol. 20(2), pages 361-379, March.
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    More about this item

    Keywords

    Open economy; sectoral interlinkage; real wage; employment;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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