EconPapers    
Economics at your fingertips  
 

Firms and Farms: The Local Effects of Farm Income on Firms’ Demand

Gabriella Santangelo

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: How do changes in agricultural productivity affect firms? Using the predictions of a simple multi-sector general equilibrium model of the local economy and exploiting weather-induced agricultural volatility across India, I estimate the response of manufacturing firms to changes in agricultural productivity. I show that negative agricultural productivity shocks lower the cost of labor but that this does not cause firms to hire more. Firms’ production and employment in fact decrease because the shocks also reduce local income and hence the demand that firms face. My estimates provide evidence for a significant local demand effect. I then use my framework to show that this has key policy implications. I examine the introduction of a rural workfare program and assess how it affects firms. I show that the program attenuates the impact of negative agricultural shocks on firms because of its counter-cyclical effects on local wage and demand for manufacturing goods. The results highlight how policies that target households and increase their income can affect local market size and therefore the industrial sector through their general equilibrium effects.

Keywords: Labor Demand; Agricultural Labor Market; Farms; Economic Development; Firms; Agriculture; Manufacturing; Rural; Agricultural Productivity; Regional Economic Activity; Regional General Equilibrium; Regional Labor Markets; NREGA; India; Workfare Programs (search for similar items in EconPapers)
JEL-codes: J23 J43 O12 O13 O14 O18 Q11 Q12 R11 R13 R23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-dev and nep-lma
Date: 2019-01-14
Note: gs578
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1924.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1924

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().

 
Page updated 2019-10-15
Handle: RePEc:cam:camdae:1924