Market and Coordination Failures in Poor Rural Economies: Policy Implications for Agricultural and Rural Development

Abstract

This paper argues that the disappointing outcomes of adjustment policies in poor rural economies, principally in sub-Saharan Africa, can be partly attributed to weaknesses in the neo-classical theory which underlies these polices and from associated failures to recognise structural changes (or transitions) in growing agricultural economies. After a brief description of agricultural policy changes in sub Saharan Africa, the mixed achievements of market liberalisation policies are explained using new institutional economic arguments regarding inherent difficulties in economic coordination in poor economies, difficulties which markets themselves cannot overcome. A novel framework is put forward for understanding coordination failure and integrating it with other causes of under-development, notably low levels of technical and institutional development and poor governance. The paper concludes by considering the implications of these arguments for development policies in different sub-Saharan economies.