Market Participation by Rural Households in a Low-Income Country : An Asset Based Approach Applied to Mozambique

Market participation is both a cause and a consequence of economic development. Markets offer households the opportunity to specialize according to comparative advantage and thereby enjoy welfare gains from trade. Recognition of the potential of markets as engines of economic development and structural transformation gave rise to a market-led paradigm of agricultural development during the 1980s (Reardon and Timmer, 2006) that was accompanied by widespread promotion of market liberalization policy agendas in Sub-Saharan Africa (SSA) and other low-income regions. Furthermore, as households' disposable income increases, so does demand for variety in goods and services, thereby inducing increased demand-side market participation, which further increases the demand for cash and thus supply-side market participation. The standard process of agrarian and rural transformation thus involves households' transition from a subsistence mode, where most inputs are provided and most outputs consumed internally, to a market engagement mode, with inputs and products increasingly purchased and sold off the farm (Timmer, 1988; Staatz, 1994)