Trends in backward linkages and domestic sourcing of raw materials by agro-industries

Type Working Paper
Title Trends in backward linkages and domestic sourcing of raw materials by agro-industries
Publication (Day/Month/Year) 2004
In the history of economic development, the emergence and growth of agroindustries
characterize the transition from a subsistence oriented agricultural economy
to an industrial economy. In this process, forward and backward linkages play
an important role. Some economists argue that the key to faster economic growth
lies on promoting industries with extensive forward and backward linkages
(Hirschman 1958). Others argue that simultaneous investment in the development
of several related industries is needed for the industrialization of a nation, a phenomenon
known as balanced growth strategy in economic literature (RosensteinRodan
1943, Nurkse 1953). In a closed economy, agro-industries provide
important market for domestic primary agricultural products through backward linkages.
In an open trading regime, however, the presence of such linkages depends
on many factors including the competitiveness of domestic agricultural sector.

The purpose of this chapter is to review the extent of backward linkages of
agro-based industries in Nepal and to identify opportunities and constraints for
promoting the use of domestic raw materials. Also some preliminary implications of
the WTO Agreement on Trade-Related Investment Measures (TRIMs) in this area
are discussed with some recommendations for strengthening backward linkages.
The chapter, organised in four sections, overviews the development of agroindustries
in Nepal and documents major raw materials used and their sources;
identifies constraints to increasing the use of domestic raw materials and presents
some emerging developments that promote their use; explores the consequences
of the WTO TRIMs in this area; and draws some conclusions.

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