ABSTRACT
Significant strands of the literature of agriculture development argue that agricultural diversification is a desirable outcome either of the dynamics of the development process or as a result of deliberate policy choice. In many developing countries, agricultural production is seen as excessively specialized because of a limited natural resource base or deliberate policy choices or distortions. Assume the agricultural sector in a semi-closed economy produces three types of goods (import substitutes or 'importables', non-traded goods or 'home goods' and potential exports or 'exportables') on a continuum from comparative disadvantage to comparative advantage. The movement from a small closed economy to a small open economy fundamentally alters the sources of price variability. In a closed economy, price variability is a function of domestic supply variability. Its amplitude is determined by the elasticities of domestic supply and demand, increasing the greater the inelasticity of either or both.
