Capital Accumulation and Economic Growth: The Case of the Retail Food Industry in Developing Countries
Author(s)
Roe, Terry; Diao, Xinshen
Abstract
The many concerns expressed with the expansion of supermarkets and their possible harmful effects on the welfare of traditional farmers have received little analysis beyond description of the basic trends mentioned. Our purpose is to show that differences in the relative capital intensity of the modern marketing channels, in contrast to the traditional channels, can explain part of this expansion as the process of economy wide economic growth that gives rise to capital deepening even when the food share of total expenditures declines. In this case, the lack of complete markets and policy distortions can further exacerbate the effects of supermarkets on the traditional marketing system and the small farmers that it supports. The article proceeds by describing the conceptual framework of a Ramsey growth model that we fit to data on the Moroccan economy. The analytical specification of the model is omitted here but appears in Roe and Diao. The empirical results show how capital deepening in transition growth can encourage the expansion of the supermarket system without the need to appeal to economies of scale or imperfect competition, how this expansion can occur even though the share of total household expenditures on food is declining, and how this process tends to both pull and push labor out of the traditional food system. The article concludes by noting how economic policy and other market imperfections can affect this process.
