STRUCTURAL CHANGE AND THE INTERSECTORAL TERMS OF TRADE: SOUTHEAST ASIAN EXPERIENCE

Abstract

In this paper it is hypothesized that premature deindustrialization is related to the intersectoral terms of trade between agriculture and manufacturing. Using a dualistic model it is shown that factors which raise the price of agricultural goods relative to manufactured goods slow the rate of structural change from agriculture to manufacturing. Data from a number of Southeast Asian countries is used to create a panel data set to test the hypothesis. Indeed a rise in the relative price of agricultural goods does indeed slow structural change and that on important factor raising this relative price ratio has been the elimination of policies which indirectly tax agriculture. The policy implication is that in order to avoid this unexpected consequence of policy reform government policy must be aimed at dramatically increasing productivity growth in agriculture.