Rural Development Policy, Agricultural Producer Services and Wage Disparities in the Context of Developing Economies

Abstract

In developing countries, due to the predominance of marginal and small farmers leads to agriculture practices on small and fragmented plots of land where access and usage to modern farm equipment and implements is hampered. Agricultural producer service sector that acts as an intermediate sector facilitates this process. We build three-sector general equilibrium models to delineate this process: parts of manufacturing goods are utilized by the service sector, the outputs of which are intermediate inputs that could substitute labor in agriculture. We explore the impact of labour market distortion mitigation and input subsidies on rural development policies on pay disparity using this framework. Growing subsidies result in widening wage inequality. Reduction of labor market distortion will raise wage rate of skilled labor, and its impact on wage rate of unskilled labor is ambiguous, depending on elasticity between skilled and unskilled labor. In order for the agricultural development policy to fall short of its broad objectives and may impact on agricultural output.