Interlocking factor market in agrarian economy of Sri Lanka

Abstract

Informal credit market plays a crucial role in the rural sector in developing countries. Prices of goods and services, in general, in the competitive markets are determined by the market forces but, prices of factors of production in agrarian economy are interlinked, thus reward of land, labour and credit also are determined by the interlockers.. An interlinked transaction is one in which the parties trade in at least two markets on the condition that the terms of all trade between them are jointly determined (Bell and Srinivasan, 1989). Agriculture sector is the foremost economic activity in Sri Lanka. Nearly 70 percent of total population living in rural areas depends completely or partially on agriculture sector. The main objective of the study is to examine the incidence of different types of linkages prevalent in the developed and backward villages among paddy farming households in Sammanthurai Divisional Secretariat area of Ampara district in Sri Lanka. This study is based on primary data and the data related to the year 2011-2012 (2011 Yala and 2011-2012 Maha). According to the results 95 per cent of the households in backward villages and 65 per cent of households in developed villages are involved in interlinked credit transactions, Hence, the result exhibits that interlinked credit transaction is higher in backward villages than that of developed villages. The results further reveal that Cash-to-Labour and Kind-to-Labour transactions in developed villages are allowed free of charge. Kind-Cash and Input-to-Output transactions are completely seen in the backward villages. Input-to-Output market link which is foremost in the backward villages and it is found to be exploitative to the paddy farmers.