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The role of agriculture in welfare, income distribution and economic development of the Free State Province of South Africa: A CGE approach

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  • Y.T. Bahta
  • B.J. Willemse
  • B. Grove

Abstract

This article researches quantitatively two distinctive roles of agriculture in the Free State provincial economy: a buffer role and the role of poverty alleviation using a Computable General Equilibrium model. To examine the capacity of the agriculture sector to act as a "buffer" in the presence of a negative external shock to the Free State provincial economy, two different shocks are considered: an increase in the international oil price together with a decrease in the international gold price and a devaluation of South African currency. In these simulations, the agricultural sector does not play a buffer role of absorbing labour displaced from other sectors. Our hypothesis was that in the presence of a negative external shock, the agricultural sector would be able to absorb, to some extent, the negative impact, especially labour. The argument is that when the rest of the economy suffers a slowdown, people will "migrate" back to agriculture and therefore the agricultural sector will grow and increase its labour demand, alleviating the impacts of the crisis. To analyse the impact of the agriculture sector on welfare and income distribution, an increase in agricultural production, industrial production and other sectors is simulated through increased labour productivity. The results suggest that the agricultural sector plays a significant role in reducing poverty and improving income distribution, but considering poverty the results suggest that the manufacturing sector increases income more than other sectors. Our hypothesis is that growth based on agriculture has a greater impact on poor income households than industrial-based growth. The assumption behind this is that more poor households rely on agriculture than on other sectors.

Suggested Citation

  • Y.T. Bahta & B.J. Willemse & B. Grove, 2014. "The role of agriculture in welfare, income distribution and economic development of the Free State Province of South Africa: A CGE approach," Agrekon, Taylor & Francis Journals, vol. 53(1), pages 46-74, March.
    • Handle: RePEc:taf:ragrxx:v:53:y:2014:i:1:p:46-74
    DOI: 10.1080/03031853.2014.887905
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    References listed on IDEAS

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    1. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
    2. Jiawen Yang, 1997. "Exchange Rate Pass-Through In U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 95-104, February.
    3. Golan, Amos & Judge, George G. & Miller, Douglas, 1996. "Maximum Entropy Econometrics," Staff General Research Papers Archive 1488, Iowa State University, Department of Economics.
    4. M. B. Dagut, 1978. "The Economic Effect of the Oil Crisis on South Africa1," South African Journal of Economics, Economic Society of South Africa, vol. 46(1), pages 15-21, March.
    5. Sherman Robinson & Andrea Cattaneo & Moataz El-Said, 2001. "Updating and Estimating a Social Accounting Matrix Using Cross Entropy Methods," Economic Systems Research, Taylor & Francis Journals, vol. 13(1), pages 47-64.
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    Cited by:

    1. Bahta, Yonas Tesfamariam & Groenewald, Johannes Andries, 2015. "The Potential Impact Of A Southern African Common External Tariffs Regime On The Economy Of Lesotho," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 3(2), pages 1-15, April.
    2. Séne, Ligane Massamba, 2014. "Heterogeneous responses to heterogeneous food price shocks in Senegal: insights from a CGE," MPRA Paper 58835, University Library of Munich, Germany.
    3. Hounnou, E. Fèmi & Dedehouanou, Houinsou & Zannou, Afio & Aguey, Segnon & Biaou, Gauthier, 2021. "Effects of Agricultural Public Investments on Economic Growth and Households’ Welfare in Benin: An Applied General Equilibrium Analysis," 2021 Conference, August 17-31, 2021, Virtual 315002, International Association of Agricultural Economists.
    4. Ramigo Pfunzo & Yonas T. Bahta & Henry Jordaan, 2024. "Insights into the Impact of Irrigation Agriculture on the Economy of the Limpopo Province, South Africa: A Social Accounting Matrix Multiplier Analysis," Agriculture, MDPI, vol. 14(7), pages 1-27, July.
    5. Bahta, Yonas Tesfamariam, 2014. "The Impact Of International Oil Price Increase On The Economy Of Free State Province Of South Africa," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 2(1), pages 1-10, January.

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