Investment policy and agricultural growth in Brazil

This study examined Brazil\u27s investment policies for the period 1960 to 1980. Special attention was devoted to the influence of investment in export crops on agricultural production, income distribution, and agricultural trade. A structural, general equilibrium model was developed for a two sector economy: nonagriculture and agriculture. The agricultural sector was divided into export crop and domestic agriculture product subsectors. The equations estimated included: nonagricultural, domestic agriculture, and export crop production functions; demand functions for both the agricultural and nonagricultural sectors; and three investment allocation relationships. The translog-type production functions included state and traditional input variables, e.g., land, capital and labor. Factor share and intercept equations were estimated, using a seemingly unrelated regression procedure, to provide indirect estimates of the production function parameters. The system of demand equations for the agricultural and nonagricultural sectors were estimated by the seemingly unrelated regression procedure also. The investment functions were estimated by ordinary least squares techniques. The average labor productivity elasticity with respect to investment is higher in both agricultural subsectors (0.5) than in the nonagricultural sector (0.05). Thus, Brazilian policy makers should consider a more balanced investment strategy with relatively greater investment in both agricultural subsectors. The hypothesis that concentration of investment in export crops increased consumer prices in Brazil for agricultural products was not supported empirically. The elasticity of domestic food prices with respect to agricultural investment was negative but small (-0.08). Counterfactual analysis provided useful insights for agricultural investment strategies. A transfer of 20 or 50 percent of the actual investment in export crops to the domestic crop subsector in one year (1962 to 1969) reduced slightly average agricultural production and trade in subsequent years. However, a 20 or 50 percent increase in investment in the domestic agricultural product subsector in 1962 would have increased average agricultural production in subsequent years by 2 or 3 percent and agricultural trade by 17 or 28 percent, respectively, with no reduction in domestic consumption. Similar results were obtained with the same percentage increase in investment in 1969. An increase in domestic agricultural investment and production would reduce domestic food prices which would be especially beneficial to low income Brazilian consumers