THE POLICY ANALYSIS MATRIX (PAM) FOR AGRICULTURAL DEVELOPMENT
THE POLICY ANALYSIS MATRIX(PAM) FOR AGRICULTURAL DEVELOPMENT
The book explains the construction of the policy analysis matrix and the derivation of measures of efficiency and policy transfer used in agricultural policy analysis. The study of agricultural policy spans three levels-microeconomic behavior of producers, marketing and trade, and macroeconomic linkages. Practitioners of agricultural economics typically give different emphasis to these three topics; micro production issues receive the greatest attention, marketing and trade get less, and macroeconomic links receive little or no coverage. This book argues that excessive specialization precludes successful policy analysis; applied agricultural economists need to understand all of the components of and links among farming systems, domestic and international markets, and macroeconomic policy. Policy analysts have to appreciate feedbacks and tradeoffs within the big picture. The Policy Analysis Matrix (PAM) approach is a system of double-entry bookkeeping. Analysts using PAM have to provide complete and consistent coverage to all policy influences on returns and costs of agricultural production. With this method, applied economists need to be equally capable of analyzing, for example, fertilizer response functions, quantitative restrictions on trade, and real effective exchange rates. The main empirical task is to construct accounting matrices of revenues, costs, and profits. A PAM is constructed for the study of each selected agricultural system-using data on farming, farm-to-processor marketing, processing, and processor-to-wholesaler marketing. The impact of commodity and macroeconomic policies can then be gauged by comparison with the absence of policy.
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