**_Policy,_** _Planning, and Research Working Paper Series_

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exchange rate to convert GDP in one country's price into the price of another - country and in multicountry comparisons to convertitintoacommon currency, such as the U.S. dollar. But exchange rates mainly indicate the purchasing power of currencies over tradables, not the average purchasing power of currencies over all goods and services. And even for tradables, the use of exchange rates is problematic because of currency fluctuations and capital movements.

With the measurement of comparative real output across countries intertwined with assessments of purchasing power, the question becomes: what is the best way to make those assessments. Most purchasing power parities have been developed for the components of final demand - for consumption, investment, and so on. This expenditure approach is useful for looking at an entire economy but it cannot be used directly for analyzing individual sectors because it does not show real product by industry.

The production approach used here looks at the industry of origin - and provides a basis for growth accounting, comparative structural anaylsis, studies of technological performance, and work on labor productivity and total factor productivity.

The method essentially takes the v.alue of output in national prices and uses unit values from census data to standardize ouput uniformly and consistently. So, rather than use a common conversion factor (the exchange rate) it uses a standardized basis of valuation.

Applied to the manufacturing sectors of Brazil, Mexico, and the United States, the revaluation of output in national and U.S. prices provides a sounder basis for constructing relative indicators of productivity. It also reveals much about trade protection policies and their incidence on different sectors of the economy.

The approach shows, in addition, which data are anomalous and which analytically useful in industrial censes. It thus provides important lessons for the developmentofthe Bank's database-on howtoincreaseits reliabilityandimprove its relavance to operations. It also shows how new insights might be gained by exploiting some official sources which, though rich in detail, often remain untapped by international agencies.

This paper is a product of the Socioeconomic Data Division, International Economics Department. Please contact Estela Zamora, room F7-136, extension 33706.

## 6. Farm-Nonfarm Linkages In **Rural Sub-Saharan Africa**

Steven Haggblade, Peter B. Hazell, and James Brown _The links between agricultural growth and the rural nonfarm economy, known to be strong in Asia, are weaker in Africa but still important to the rural poor. Crucial for strengthening these links are policies and investments that (1) promote smallholders, (2) improve rural infrastructure, (3) encourage commerce and services, (4) foster the development ofrural towns, and (5) explicitly recognize women as key actors in rural development._ Agricultural growth stimulates the rural nonfarm economy through a variety of links - some operating through production relations, others through production relations, others through consumer spending patterns. In Asia these links are strong: a $1 increase in agricultural incomes will generate about 80 cents in additional rural income, mainly among suppliers of rural nonfarm goods and services. In Sub-Saharan fafrica, however, these links are much weaker a $1 increase in agricultural income will genase only about 50 cents of additional rural income.

One reason for these weaker links in Sub-SaharanAfricaisthatthereislessirrigation, which creates jobs in construction and maintenance. Another is the lower population density, increasing the distances to markets and diminishing the competitiveness of remote producers. A third is the pattern of household consumption, with less diversity in both food and nonfood consumption. Government policies and poor infrastructure also put brakes on the nonfarm economy.

Demand clearly is the main constraint on the rural nonfarm economy. So the first task is to get agriculture going - in short, to bring faster agricultural growth to Sub-Saharan Africa. The focus should be on small-scale farming, because of its many links to the rural nonfarm economy. the second task is to be ready when it comes. Here are some key considerations for policy formulation and future research:

* Investmentcodesandrelatedlaws that discriminate against small, rural firms have to be redressed.

* The focus on small-scale, rural manufactiring has to be redirected to include services, which are among the fastest growing rural nonfarm activities.

_*_ Rural towns, crucial for the development of the rural nonfarm economy, have to be assured of adequate economic and institutional infrastructure, especially ground transport, comunications, and efficient credit and labor markets.

> _*_ Investments in rural roads and transport systems have to be adequate to ensure that viallagers have easy access to rural towns.

_*_ Investments in people's skillshave to accompany the investments in infrastructure to develop all types of rural businesses.

* Directassistancetoruralnonfarm - enterprises such as credit projects, especially those for working capital - can be much more cost effective than technical assistance and projects providing modern workshop facilities.

* Because women will be the key actors in the transformation of Africa's rurlaeconomy-intrading,inprocessing and preparing food, and in many other services - governments and assistance agencies must explicitely recognize this role and ensure that credit schemes are open to women as well as men.

This paper is a product ofthe Agricultural Policies Division, Agriculture and Rural Development Department. Please contact Cecily Spooner, room J2-084, extension 37570.

# 7. Institutional Aspects of Credit **Cooperatives**

Avishay Braverrnan and J. Luis Guasch _If credit cooperatives are to be viable and help farmers, particularly small-scale farmers, they must pay more attention to the design of their operations - to the accountability of managers, to the structuringofincentives, and to the monitoring and enforcement of repayments._