The impact of connectivity on market interlinkages – evidence from rural Punjab: evidence from rural Punjab

Up to the late 1980s it was generally accepted that many of the key issues in agrarian development could not be studied without an understanding that rural markets were interlinked, causing equilibria to be jointly determined. In recent years, however, theory on market interlinkages has disappeared from mainstream agrarian development literature. Based on a household-level survey conducted in rural Pakistan, this paper seeks to re-introduce the importance of interlinkages and to illustrate the exploitative potential this market structure can have for poor peasants, particularly in unequal isolated villages where the landlord is essentially a monopolist/monopsonist. A proposed solution is then to connect villages to the external economy so as to increase peasants’ alternative options. Making use of a natural experiment found in the construction of a motorway, the study finds that while connectivity does not break interlinkages completely - as they do have the functional effect of lowering transaction costs - it does significantly alter the nature of the relationship between landlords and the rural poor in favour of the latter, and in particular to the advantage of the socially lower classes.