IV: FACTOR POLICY

Factor policies are interventions that directly influence the prices of labor, capital, or land. Because a factor policy affects all commodity markets simultaneously, its impact on an economy can be more substantial than that of a commodity policy. This chapter reviews the principal causes of divergences in factor markets and explores how factor policies alter the profitabilities of particular production systems. These policies are considered first in a static context. However, a number of aspects of the process of income growth are missed by a comparative static view. Prices, factor endowments, and technologies change over time, causing changes in production patterns and incomes. Factor prices and factor policies have particular importance in the growth process because they influence the pattern of technical change as well as the profitability of commodity systems. Subsequent sections thus consider dynamic interactions among factor policy, public investment, and technical change. The final section places PAM results in the context of factor policy evaluation.