An empirical analysis of oil price fluctuation on agricultural productivity in an oil-exporting economy: A case study of Mexico

The objective of this study is to analyze the agricultural production process in an oil-exporting economy and to determine whether increases in petroleum revenues during the 1970\u27s and 1980\u27s obstructed productivity growth for small-scale agricultural producers. Numerous academic studies have addressed the issue of a decline in the manufacturing and agricultural sectors of a resource exporting country during a resource boom; however, these studies have employed sectorial output as a measure of welfare which does not consider the normal adjustments in an open economy to changes in the country\u27s competitive advantage. By employing productivity of individual producers a much clearer understanding of the effects of a resource boom can be established. The focus of this study is Mexican small-scale agricultural producers located in the central state of Puebla. The empirical analysis employs a dual methodology of measuring productivity growth, an econometric methodology utilizing the translog cost function, and a growth accounting methodology utilizing the Tornqvist-Theil index. The results of the analysis indicate that productivity decreased for small-scale agricultural producers during the resource boom attributed to a reduction in the scale of production and reduction in the technology employed in the production process. Because the technology employed by small-scale agricultural producers is based on an annual investment in fertilizers, insecticides and improved seed, a reduction in technology is observed from the increase in the marginal products of inputs and a constant output price. A decline in productivity of agricultural producers indicates that resources are not being used to their potential during a resource boom; therefore, government policy is warranted to counter the productivity decline of small-scale producers