Showing papers in "Development and Change in 2001"

Advancing a political ecology of global environmental discourses

Abstract: In the past decade international and national environmental policy and action have been dominated by issues generally defined as global environmental problems. In this article, we identify the major discourses associated with four global environmental issues: deforestation, desertification, biodiversity use and climate change. These discourses are analysed in terms of their messages, narrative structures and policy prescriptions. We find striking parallels in the nature and structure of the discourses and in their illegibility at the local scale. In each of the four areas there is a global environmental management discourse representing a technocentric worldview by which blueprints based on external policy interventions can solve global environmental dilemmas. Each issue also has a contrasting populist discourse that portrays local actors as victims of external interventions bringing about degradation and exploitation. The managerial discourses dominate in all four issues, but important inputs are also supplied to political decisions from populist discourses. There are, in addition, heterodox ideas and denial claims in each of these areas, to a greater or lesser extent, in which the existence or severity of the environmental problem are questioned. We present evidence from location-specific research which does not fit easily with the dominant managerialist nor with the populist discourses. The research shows that policy-making institutions are distanced from the resource users and that local scale environmental management moves with a distinct dynamic and experiences alternative manifestations of environmental change and livelihood imperatives.

Tackling the Down Side: Social Capital, Women's Empowerment and Micro-Finance in Cameroon

Abstract: Micro-finance programmes are currently dominated by the ‘financial selfsustainability paradigm’ where women’s participation in groups is promoted as a key means of increasing financial sustainability while at the same time assumed to automatically empower them. This article examines the experience of seven micro-finance programmes in Cameroon. The evidence indicates that micro-finance programmes which build social capital can indeed make a significant contribution to women’s empowerment. However, serious questions need to be asked about what sorts of norms, networks and associations are to be promoted, in whose interests, and how they can best contribute to empowerment, particularly for the poorest women. Where the complexities of power relations and inequality are ignored, reliance on social capital as a mechanism for reducing programme costs may undermine programme aims not only of empowerment but also of financial sustainability and poverty targeting.

Avoiding disaster: diversification and risk management among East African herders

Abstract: This article addresses processes of livelihood diversification among pastoralists in the rangelands of northern Kenya and southern Ethiopia. The objectives of the article are threefold: (1) to suggest a theoretical framework for addressing income diversification among pastoralists with reference to current literature and databases; (2) to present a case study on pastoral income diversification based on preliminary field research in northern Kenya and southern Ethiopia; and (3) to summarize current understandings of pastoral diversification while pointing to additional empirical research needs. By showing how comparative analyses in the region have been constrained by theoretical and data deficiencies, the article explores ways in which income diversification differs by what are termed conditional, opportunity, and local response variables. Climate, distance to market towns, gender, wealth, and education are attributes covered by these variables and discussed in the article. The conceptualization and case study provide useful bases for conducting comparative research on pastoral diversification in East Africa specifically, and in sub-Saharan Africa generally.

A Strategic Approach to Multistakeholder Negotiations

Abstract: Environment and development practitioners increasingly are interested in identifying methods, institutional arrangements and policy environments that promote negotiations among natural resource stakeholders leading to collective action and, it is hoped, sustainable resource management. Yet the implications of negotiations for disadvantaged groups of people are seldom critically examined. We draw attention to such implications by examining different theoretical foundations for multistakeholder negotiations and linking these to practical problems for disadvantaged groups. We argue that negotiations based on an unhealthy combination of communicative rationality and liberal pluralism, which underplays or seeks to neutralize differences among stakeholders, poses considerable risks for disadvantaged groups. We suggest that negotiations influenced by radical pluralist and feminist poststructuralist thought, which emphasize strategic behaviour and selective alliance-building, promise better outcomes for disadvantaged groups in most cases, particularly on the scale and in the historical contexts in which negotiations over forest management usually take place.

Greening Without Conflict? Environmentalism, NGOs and Civil Society in China

Abstract: This article argues that the specific features and dynamics of China's environmentalism can be attributed to two factors: the 'greening' of the Chinese state at the time when environmentalism emerged, and the alternating politics of toleration and strict control of social organizations. As a result, environmentalism has developed in a gradual way, encompassing the various forms of 'green' NGOs that we see in the West and the ex-socialist states of Eastern and Central Europe. Yet, on the other hand, environmentalism was also robbed of the opportunity, as well as the immediate urgency, to openly confront the government. This is where it deviates from environmentalism in the West and the former Eastern-bloc countries.

Post‐Conditionality Politics and Administrative Reform: Reflections on the Cases of Uganda and Tanzania

Abstract: This article contributes to the discussion of the nature of external intervention in the reform processes of indebted states. Looking at administrative reform in Uganda and Tanzania, it is argued that external involvement in sub-Saharan Africa is becoming increasingly differentiated. For some states — including the two cases dealt with here — a key set of continuities and changes allows us to conceptualize a regime of post-conditionality. Post-conditionality regimes exist where extreme external dependence and economic growth produce a set of political dynamics in which external–national distinctions become less useful, in which there emerge a set of unequal mutual dependencies, and in which donor/creditor involvement in reform becomes qualitatively more intimate, pervading the form and processes of the state. Details of this dispensation are provided in an analysis of key ministries and key interventions by donors/creditors. The article finishes by considering the contradictions of the post-conditionality regime, and its prospects.

Externalities, Learning and Governance: New Perspectives on Local Economic Development

Abstract: textIn the late seventies, John Friedmann made an attempt to formulate a new paradigm for regional development. His basic proposition was that the then prevailing development paradigm had been dominated by functional integration (Friedmann and Weaver, 1979). The integrity of local territorial life had been surrendered in the interests of growth and efficiency. Efficient large-scale functional organisation meant centralisation at higher levels. The trans-national corporation was seen as the ultimate embodiment of this approach. In his view regional planning was at a crossroads; it would have to choose between function and territory. He subsequently formulatedthe'development of territory as an alternative paradigm. As a guiding principle this was more egalitarian, distributive and integrative, including economic, social as well as political dimensions of development. Friedmann and Weaver's book received a mixed reception. One of the critiques was by Jos Hilhorst, my predecessor (Hilhorst, 1980). The formulation of function and territory as two opposites had, in his view, a number of basic flaws. Subsequent developments in the literature have proven Hilhorst to be right in a number of respects. The interaction between function and territory became, in the late eighties and early nineties, an important dimension of localised economic growth and embedded development.

The Failure of Popular Justice in Uganda: Local Councils and Women’s Property Rights

Abstract: Advocates of alternative dispute resolution argue that informal community-based institutions are better placed to provide inexpensive expedient and culturally appropriate forms of justice. In 1988 the Ugandan government extended judicial capacity to local councils (LCs) on similar grounds. Drawing on attempts by women in southwestern Uganda to use the LCs to adjudicate property disputes this article investigates why popular justice has failed to protect the customary property rights of women. The gap between theory and practice arises out of misconceptions of community. The tendency to ascribe a morality and autonomy to local spaces obscures the ability of elites to use informal institutions for purposes of social control. In the light of womens attempts to escape the "rule of persons" and to seek out arbiters whom they associate with the rule of law it can be argued that the utility of the state to ordinary Ugandans should be reconsidered. (authors)

Political Obstacles to Decentralization: Evidence from Argentina and the Philippines

Abstract: Decentralization has swept across the developing world in recent years. Although the speed and scope of the shift toward more decentralized practices is striking, decentralization is neither inevitable nor irreversible. Rather, it faces enormous political obstacles and can be subject to serious setbacks. This article accounts for attempts by national politicians to thwart decentralization in two countries that recently adopted some of the most significant decentralizing changes in their respective regions: Argentina and the Philippines. Based on fieldwork in each country, it suggests that even after the political decision to decentralize has been made, national politicians may face deep-seated incentives to preserve centralized control over fiscal policy. In Argentina, President Carlos Menem partially reversed the previous decentralization of revenue because fiscally-independent provincial governors were a challenge to his political interests and capabilities. In the Philippines, legislators attempted to reverse and then circumvent decentralization since it threatened their status as brokers claiming personal credit for negotiating fiscal transfers from the centre. The article identifies an intermediate outcome in both countries, according to which decentralizing policies are neither entirely reversed nor implemented as initially designed.

Aid as a Catalyst

Abstract: This article argues that aid is not the prime mover of development, but rather a catalyst. It might be used as a reward for good development governance. However, it will fulfil its catalytic function better by creating conditions for policy improvement. Better governance should be seen not only as a pre-condition for development and for development aid, but also as a development objective in itself. This is particularly true for aid recipient countries in disarray.

Property Rights and the Environment in Pastoral China: Evidence from the Field

Abstract: It is widely perceived that the degradation of China’s rangelands has accelerated since the introduction of rural reforms in the late 1970s. The popular explanation for this phenomenon has been that a ‘tragedy of the commons’ exists, as privately-owned livestock are being grazed on ‘common’ land. Since the passing of the Rangeland Law in 1985, Chinese pastoral tenure policy has emphasized the establishment of individual household tenure as a necessary condition for improving incentives for sustainable rangeland management. Yet household tenure has yet to be effectively established in many pastoral regions. The first objective of this article is to describe pastoral tenure arrangements in northern Xinjiang-Uygur Autonomous Region. Its second objective is to explain pastoral tenure arrangements, particularly the observed persistence of collective action. It is argued that there is no ‘tragedy of the commons’ and that it is characteristics of rangeland resources and the social environment that give rise to the particular types of institutional arrangements found. THE CONVENTIONAL PERSPECTIVE ON CHINESE PASTORAL TENURE AND THE ENVIRONMENT China’s rural reforms, initiated in its cropland regions in the late 1970s, spread to its pastoral regions by the mid-1980s. Central to the initial reforms was the replacement of the commune system with the Household Responsibility System, under which households were granted greater autonomy with respect to farm management. In pastoral regions, former commune livestock were distributed in ownership to households, on the basis of their total population and labour force. Production quotas were reduced and livestock product marketing channels liberalized. After the payment of government taxes and fees, households were entitled to residual income. The reforms have had a positive impact on pastoral household incomes but it is widely perceived by Chinese policy-makers and researchers that the

Cadastral Politics: The Making of Community‐Based Resource Management in Zimbabwe and Mozambique

Abstract: Projects promoting community-based management of natural resources frequently encourage local smallholders to share flora, fauna, or land forms with state agencies and/or private companies. Ideals of common property and moral economy have inspired this agenda and helped spread it globally. In Southern Africa, however, the general model of shared landscapes has collided with a bitter history of white colonization and land grabbing. This article recounts the rise and fall of one CAMPFIRE (Communal Areas Management Programme for Indigenous Resources) project in eastern Zimbabwe. There, cadastral politics — struggles over the bounding and control of land — overwhelmed negotiations for joint management and eco-tourism. Across the border, in Mozambique, community-based resource management has engaged with cadastral politics in a more fruitful fashion. In the midst of latter-day Afrikaner colonization, this project mapped smallholders’ claims to land. Thus, the Zimbabwean project ignored territorial conflict and ultimately succumbed to it. The Mozambican project jumped into the fray, with some success. On past or current settler frontiers, community-based management may learn from this lesson: dispense with an ideology of sharing and join the rough-and-tumble of cadastral politics.

Women's Movements and Challenges to Neopatrimonial Rule: Preliminary Observations From Africa

Abstract: Womens movements in Africa represent one of the key societal forces challenging state clientelistic practices the politicization of communal differences and personalized rule. In the 1980s and 1990s the authors witnessed not only the demise of patronage-based womens wings that were tied to ruling parties but also the concurrent growth of independent womens organizations with more far-reaching agendas. The emergence of such autonomous organizations has been a consequence of the loss of state legitimacy the opening-up of political space economic crisis and the shrinking of state resources. Drawing on examples from Africa this article shows why independent womens organizations and movements have often been well situated to challenge clientelistic practices tied to the state. Gendered divisions of labor gendered organizational modes and the general exclusion of women from both formal and informal political arenas have defined womens relationship to the state to power and to patronage. These characteristics have on occasion put womens movements in a position to challenge various state-linked patronage practices. The article explores some of the implications of these challenges. (authors)

State–Society Relations in Land Reform Implementation in the Philippines

Abstract: Contrary to earlier pessimistic predictions, the Comprehensive Agrarian Reform Programme (CARP) in the Philippines has achieved significant success in land redistribution, although not quite matching the original claims of the state. The dominant public policy and land reform literature, broadly divided between state-centred and society-centred approaches, has difficulty in fully explaining the unexpected outcomes of the CARP process. Going beyond these dichotomous views, and using Fox’s interactive framework for analysing state‐society relations, this article argues that redistributive land reform can be implemented in a politically hostile situation when initiatives by state reformists ‘from above’ positively interact with social mobilizations ‘from below’.

Social Capital and Community Strategies: Neighbourhood Development in Guatemala City

Abstract: This article uses a social capital framework to analyse the strategies employed by two low–income communities in Guatemala City to improve their physical and social environment. The case studies provide examples of poor communities, without access to any form of insurance or welfare benefits, struggling to achieve neighbourhood development. They also demonstrate the way in which strategies can be defined by the issue of land tenure. Key strategies for development were found to be mobilization through community organization, informal links (including clientelistic relations) with powerful groups, and protest. The author concludes that social capital (within communities and between stakeholders) and some degree of security (land tenure) are critical ingredients for communities to develop effective strategies for neighbourhood development with other stakeholders.

Managing Knowledge and Storing Wisdom? New Forms of Foreign Aid?

Abstract: Aid agencies claim that their development expertise and advisory services are more important than their funds. Development research databases highlight broader problems in the knowledge management systems that have been established to record and distribute that expertise. In practice, distilled digested mini-facts disseminated electronically risk perpetuating rather than reducing dependence. A banking model of knowledge and knowledge sharing stymies learning because it undermines and devalues learners’ initiative and responsibility. More consequential than detached bits of information is learning, largely initiated, maintained, and managed by those seeking to change their situation. Problem-solvers must be directly involved in generating the knowledge they require. Achieving information affluence in poor countries cannot rest on transfer and absorption but rather requires a generative process with strong local roots.

Economic Policy and Women's Informal Work in South Africa

Abstract: This article examines the gender dimensions of the growth in informal and flexible work in South Africa and the governments policy response to this. It outlines the growth in informal and flexible work practices and as illustrative examples analyzes how trade and industrial policies and labor market policies are impacting on the growth of informal and flexible work. It is argued that the South African governments trade and industrial policies are shifting the economy onto a path of capital intensification. Allied to this firms are undergoing a process of extensive restructuring. These developments are further promoting the growth of flexibilization and informalization and thereby disadvantaging women. The article demonstrates that while the government offers a vast package of support measures to big business its policy is largely irrelevant to the survivalist segment of small business where most women in the informal economy are to be found. The picture for labor policy is more diverse. Aspects of the labor legislation are promoting the growth of a dual labor market while there seems to be some tightening up of practices aimed at bypassing aspects of the protection provided to workers. (authors)

Precarious Democratization and Local Dynamics in Niger: Micro–Politics in Zinder

Abstract: Literature on the African state often finds it hard to specify what is state andwhat is not. The closer one gets to a particular political landscape, the moreapparent it becomes that many institutions have something of a twilightcharacter. This article argues that studies of local politics in Africa shouldfocus on how the public authority of institutions waxes and wanes and howpolitical competition among individuals and organizations expresses thenotion of state and public authority. This is explored in the context of con-temporary political struggles in Niger, played out in three different arenas inthe region of Zinder around 1999, as home-town associations, chieftainciesand vigilante groups all take on the mantle of public authority in their deal-ings with what they consider to be their antithesis, the ‘State’. INTRODUCTION The politics of Niger in the 1990s seems to have been characterized largelyby turbulence. The crumbling of the military-controlled one-party system inthe late 1980s and the downfall of President Kountche´, paved the way for asovereign National Conference in 1991, the adoption of a democratic con-stitution and the establishment of political parties. A political confronta-tion between the president and the parliament turned into an enduringdeadlock which led to a military take-over by Lieutenant Colonel Bare´in 1996. The adoption of a modified democratic constitution was followed

Community Formation and Fisheries Conservation in Southern Thailand

Abstract: This article explores theories of community, common property and collective action by reflecting upon the management and enclosure of a coastal fishery in Southern Thailand. Its aims are threefold. First, it explores the incentives that motivated villagers to support and enforce this common property regime. Second, it considers the issue of leadership, investigating why certain individuals were willing to bear considerable costs on behalf of the fishery, while others were not. Finally, it examines the ways in which religion and ethnic identity helped to forge ‘an image of community’ on which collective action could thrive. It argues that age, gender and class had a profound impact on the extent to which individuals could engage in this important socio-political activity. In so doing, it illustrates the dynamic ways in which power, structure and historical social relations can shape community, common property and collective action.

On the targeting and cost-effectiveness of anti-poverty programmes in rural India.

Abstract: This article is motivated by a concern for the cost-effectiveness of anti-poverty outlays; much of its focus is on the targeting of Rural Public Works (RPW) and the Integrated Rural Development Programme (IRDP) over the period 1987‐93. It is argued that benefits to the rural poor of larger outlays on these two major anti-poverty programmes are likely to be limited, given their mistargeting. Large sections of the rural poor were not covered in 1987. Worse, the non-poor were in a majority among the participants. Although the evidence is mixed, there was a worsening of the targeting of both RPW and IRDP, with RPW maintaining a slight superiority, over the period 1987‐93. Yet IRDP was more cost-effective in both years, using a somewhat limited measure of cost-effectiveness. Large unspent balances due largely to slow disbursal of allocations and bunching of expenditure in a few months are linked to changes in cost-effectiveness. Wastage and diversion of funds are unavoidable, in a context of corrupt bureaucracy and capture of locally elected bodies such as Panchayats by a few influential persons. Short of drastic changes in the design and implementation of RPW and IRDP, substantially larger outlays may thus accomplish little in terms of poverty alleviation.

Financing Decentralized Development in a Low-Income Country: Raising Revenue for Local Government in Uganda

Abstract: Uganda has been engaged for a number of years in an ambitious programme of political and financial decentralization involving significantly expanded expenditure and service delivery responsibilities for local governments in what are now forty-five districts. Fiscal decentralization has involved allocation of block grants from the centre to complement increased local tax revenue-raising efforts by districts and municipalities. This article is concerned with the financial side of decentralization and in particular with an examination of district government efforts to raise revenue with the tax instruments which have been assigned to them. These are found to be deficient in a number of ways and their tax raising potential not to be commensurate with the responsibilities being devolved. Achievement of the decentralization aims laid down, therefore, must depend either on the identification of new or modified methods of raising revenue locally, or increased commitment to transfer of financial resources from the centre, or both.

Agrarian Differentiation in Post–Socialist Societies: Evidence from Three Upland Villages in North–Western Vietnam

Abstract: The literature on post-socialist transformations displays a fairly broad consensus that changes in macro structures of state and economy generate or increase rural inequality. This article examines the distributional effects of macro changes in Vietnamese villages. Findings from local-level research highlight the multiple ways in which people react to changes in macro structures. Core fields of negotiation by local people include exchange relations, the use of surplus, and land tenure. Local negotiation may lead to local-level trajectories of agrarian change that differ significantly from national-level changes. Changes in macro structures thus may not substantially alter the underlying process of differentiation. Rural people may be rich and poor for the same reasons as under collective agriculture, though income differences may have become more accentuated.

Social Funds in Stabilization and Adjustment Programmes: A Critique

Abstract: This article evaluates the impact of the large number of Social Funds (SFs) which were introduced over the last fifteen years to offset the increase in poverty induced by adjustment. SFs have enjoyed greater visibility and financial support by the donor community than traditional social security programmes, and raised expectations about improvements in living conditions in developing countries. Notwithstanding the visibility and administrative flexibility they enjoyed, and their fairly rapid implementation, SFs played only a minor role in reducing the number of adjustment poor and chronic poor and reversing adverse shifts in income distribution. This was due to problems in funding, targeting and sequencing, and cost-effectiveness. The article concludes that, all in all, SFs have proven to be no panacea. Many of them were formulated with the political objective of reducing domestic opposition to the adjustment process. Greater impact on poverty would have required increased resources, more permanent relief structures, improved planning and targeting and, especially, better timing in relation to the fiscal cuts entailed by macroeconomic adjustment.

Civil Society, Locality and Globalization in Rural Tanzania: A Forty–Year Perspective

Abstract: In the last decade, much discussion of civil society in LDCs, especially those in Africa, has been based on two sets of normative assumptions, one deriving from the Tocquevillian tradition, the other concerning the nature and implications of globalization. This article criticizes both these approaches, on the basis of a restatement of the Hegel–Young Marx position on civil society. This is then used to compare and contrast the character of rural civil society in northern Tanzania in the 1950s and 1990s, allowing a critical consideration of the emergent properties of LDC civil societies, of the changing significance of the ‘local’ and the ‘global’ within them, and of the underlying sources of their transformation.

The House that Poison Built: Customary Marine Property Rights and the Live Food Fish Trade in the Kei Islands, Southeast Maluku

Abstract: The use of cyanide to stun and capture live food fish for export first appeared in the Philippines during the mid-1970s. Today, this technology has spread throughout Southeast Asia and the Indo-Pacific region, causing widespread damage to coral reef ecosystems. This study examines the local political and economic changes that have resulted since this destructive trade arrived in the Kei Archipelago of the Southeast Maluku District in Indonesia. District and provincial fisheries and law enforcement officials turn a blind eye, and evidence suggests complicity by some members of the military. Many local fishermen attempt to resist, motivated more by vestigial concepts of communal village rights and rules governing access to coral reef territories and resources, than by some intrinsic sense of environmental conservation. The article challenges the romantic predisposition of indigenous knowledge systems scholarship that characterizes local knowledge and practices as inherently ecofriendly and socially just, and argues for closer examination of the dynamics involved when local practices and institutions are integrated into larger circuits of production and trade.

Beyond the Property Rights Approach: Welfare Policy and the Reform of State‐Owned Enterprises in China

Abstract: During the pre-reform era, Chinese state-owned enterprises (SOEs) operated not only as firms, but also as mini-welfare states, providing employees with lifetime employment, inexpensive housing, free health care, and pensions. Since China’s market transition began in the late 1970s, however, SOEs have had to bear increasingly heavy burdens for welfare provisions to their employees. The steep increase in welfare spending has not only eroded the base of state revenue, but has also impeded further SOE reforms. To lighten welfare burdens upon SOEs and to remove institutional obstacles to marketization and privatization embedded in the existing welfare system, the Chinese state has imposed many welfare reforms aimed at shifting responsibilities for welfare provision from SOEs to a combination of government, enterprises, communities, and individuals. This article examines the belated welfare reforms in China’s state sector and their impact upon the reform of SOEs. It finds that reform implementation has been sluggish. To achieve the policy goal of welfare reforms, high degrees of state autonomy and capacity are needed.

The Rise and Fall of ‘Internally Displaced People’ in the Central Peruvian Andes

Abstract: This article analyzes the possible effects of the introduction of the category of internally displaced people (IDP)--in the context of violent in central Peru. It gives an account of the ways in which the IDP category has been introduced and appropriated by local nongovernmental organizations people affected by violent conflict and displacement and by the governmental organization PAR set up to facilitate return and repopulation after the declared end of the armed conflict. The category has facilitated and given leverage to a national organization of IDPs. However the agencies and programs that work in support of IDPs tend to regard existing mobile livelihood practices as an impediment for advocacy and longer-term development strategies. This article suggests that instead of considering displacement (and return) as an absolute break with the past a focus on networks and mobile livelihoods may be a better way to help people affected by violent conflict to move beyond emergency relief. (authors)

Thailand: The Making of a Miracle?

Abstract: Over the last half century, Thailand has been one of the fastest growing developing countries. This article reviews the causes of that growth. It deals both with the immediate factors, in a growth accounting framework, and with the underlying social and political factors. The author reaches the conclusion that a dynamic entrepreneurial class together with a supportive state were the key elements in Thailand’s rapid and efficient accumulation of production factors. Although in this respect Thailand is similar to a small number of other East Asian countries, the Thai case also has a number of unique characteristics.

The Pluralist Paradox: The Decline of Economic Interest Groups in Zambia in the 1990s

Abstract: New democracies attempting to implement political and economic reform simultaneously are considered to face a dilemma, as democratization may undermine economic reform by encouraging political participation and empowering interest groups that are unlikely to benefit from reform. This article compares relations between interest groups and the government under one-party and multiparty rule in Zambia. Contrary to the assumptions of pluralist theory, the article argues that the influence of interest groups declined as a result of political and economic liberalization. Political liberalization in Zambia has so far resulted in a proliferation of civic associations and a weakening of corporatist links between the state and economic interest groups that had been granted some real influence in the previous authoritarian regime. This ‘pluralist paradox’ has meant, at least in the initial phases of multiparty rule, that interest group resistance has not constituted a significant threat to the sustainability of the reform programme, or to the electoral prospects of the Movement for Multiparty Democracy (MMD).

The Macro‐Economic Effects of Directed Credit Policies: A Real‐Financial CGE Evaluation for India

Abstract: The effectiveness of directed credit programmes as an instrument for economic development is the subject of considerable debate. However, the focus of this debate is almost exclusively on the intra-sectoral effects of directed credit and its adverse effects on financial sector performance, neglecting possible spillover effects on demand, production and investment in the rest of the economy. This article tries to fill this gap by examining the macroeconomic effects of directed credit in India with the help of a novel realfinancial computable general equilibrium (CGE) model. Focusing on credit rather than money, the model goes beyond earlier modelling approaches by (1) incorporating directed credit policy and credit rationing; (2) recognizing the dual role of credit for working capital and investment; and (3) allowing for switches between credit-constrained, capacity-constrained and demandconstrained regimes. The results from short- and medium-term simulation experiments with the model indicate that, when credit market failures result in rationing as in India’s agricultural and small-scale industrial sectors, the macro-economic effects of directed credit are likely to be significant and positive.