Macroeconomic interactions between agriculture and industry: Investment, saving and the terms of trade

This dissertation deals with short-run macroeconomic interactions between agriculture and industry. The focus is on (1) the inter-sectoral terms of trade and investment in manufacturing, (2) investment and the inter-sectoral and inter-class distribution of income, (3) the agricultural market for manufacturing output, (4) the role of agricultural savings in financing manufacturing investment, and (5) the constraint on manufacturing growth posed by inelastic food supply. Modes of macroeconomic adjustment are studied in Classical and Keynesian macroeconomic frameworks. The Keynesian analysis is developed in a version with full utilization of productive capacity and forced-saving adjustment, and in a version with underutilization of capacity and output adjustment.;Emphasis is placed on the implications of replacing an aggregated manufacturing sector in agriculture-industry models with one that produces distinct capital and consumption goods. In conjunction with Engel's law this generates an association between the urban surplus, employment and the real wage that reverses conventional results. It is shown that an increase in agricultural savings reduces manufacturing-sector saving and investment even if manufacturing is not market constrained. Additionally, an improvement in agriculture's terms of trade raises the urban surplus even if agricultural output is constant. A computable general equilibrium simulation based on a social accounting matrix for Egypt shows that an improvement in agriculture's terms of trade is needed to support expansion of manufacturing. Egypt's large food deficit is explained by higher manufacturing investment, cheap food policies and the particular configuration of consumption parameters of its social classes.;Further conditions are specified under which (1) agricultural growth constrains the market for manufacturing or reduces profits on manufacturing capital; (2) attempted inter-class redistributions yield unintended inter-sectoral redistributions; (3) manufacturing expansion in dual economies reduces agriculture's terms of trade or generates binding food supply bottlenecks; (4) a price elastic marketed surplus is incapable of preventing reductions in the real wage during investment expansion; (5) agricultural procurement and urban food subsidy policies lead to improvements in the inter-class urban distribution while shifting the inter-sectoral distribution in agriculture's favor; (6) modes of implementation of terms of trade policy condition the effects of alternative inter-sectoral investment allocations.