Market distortions and technological progress in agriculture

It is widely believed that price policies have contributed to low rates of productivity growth in agriculture, but there has been little progress to date in work on the relationship between price distortions and agricultural productivity or agricultural research. Given the importance of technological change in agriculture, it is important to know whether price policies impede investments in R&D and productivity growth. In this article, a theoretical analysis indicates that the effects of commodity price policies on incentives of government and industry to invest in agricultural research are ambiguous. While the results suggest a general tendency of policies that protect producers to encourage greater research investments, the opposite result cannot be ruled out. A statistical model using international, cross-sectional, time-series data shows that agricultural research investments are significantly correlated, but negatively, with rates of producer protection. The implication is that some factor other than price policy is responsible for both the low rates of public-sector investments in agricultural research worldwide, and the low rates of productivity growth in less-developed countries. Research administrators in more- and less-developed countries alike typically consider a multiplicity of goals when setting research priorities and research budgets. Therefore, an alternative explanation of low agricultural productivity and underinvestment in agricultural research may be that public-sector research policy has been misguided.