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In sub‐Saharan Africa, there is fairly broad agreement that increased investment in key public goods such as roads and communications infrastructure, agricultural research and water control will be required if revitalised agricultural development is to take place. However, it has proved more difficult to reach agreement on what needs to be done to improve the performance of agricultural markets. In this article we set out an agenda for investment and policy reform in this area, providing a brief theoretical examination of the co‐ordination problems involved before examining in turn demand and supply constraints affecting smallholder farmers, and policies for price stabilisation and the co‐ordination of support services. We also argue that increased attention needs to be paid to governance issues.

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The benefits of livelihoods thinking and approaches are widely recognised. This article focuses on an important gap in much of the conceptualisation and application of 'livelihood approaches' -a lack of emphasis on markets and their roles in livelihood development and poverty reduction. The omission is important, as it can lead to failure to identify and act on a wider range of market, institutional and technological opportunities and constraints. An alternative conceptualisation is proposed, with markets as one particular set of institutional mechanisms for co-ordination and exchange in an economy. It is argued that more explicit attention to interactions between institutions, technology and assets in livelihood analysis may be valuable in conceptualising and managing programmes for livelihood development and poverty reduction.The benefits of livelihoods thinking and approaches are widely recognised, including, for example, their stress on the importance of people-centred change, a holistic approach, people's access to different assets, poor people's vulnerability, partnerships, sustainability, change, and the multi-faceted nature of livelihoods. In this article, however, we focus on what we argue is an important gap in much of the conceptualisation and application of 'livelihood approaches', namely, a lack of emphasis on markets and their roles in livelihood development and poverty reduction. Given that one of the roots of livelihoods thinking was Sen's concept of entitlements, this is surprising. The omission is important. If the roles of markets and market relationships are not properly addressed in livelihoods analysis and action, it can lead to failure to identify and act on (i) livelihood opportunities and constraints arising from critical market processes and (ii) institutional issues that are important for pro-poor market development. These are intimately related to macro-and meso-processes of change in national and local economies.

This article explores policy applications of 'new institutional economics' theory in relation to markets and economic development. It argues for application of an analytical framework which instead of looking at institutions primarily in terms of their contributions to making competitive markets work better, sees such markets as one form of institution fulfilling exchange and co-ordination functions in an economy. A key element in this is recognition of the importance of processes of change in non-standard market arrangements in economic development, and there are strong theoretical, practical and historical grounds for more consistent policy in this area.

The recent food crisis in Malawi has drawn stark attention to the failures of development policies over the last forty years to create wealth and develop a robust economy or the markets on which such an economy must depend. Current market liberalisation policies have achieved at best mixed success in addressing the generic problems inhibiting smallholder agricultural development : low returns to farmers' and service providers' investments, with high risks from natural shocks, price variations, coordination failure and opportunistic behaviour. Postindependence institutional mechanisms in Malawi were more successful in addressing some of these problems, in particular those of coordination risk, although external and internal difficulties led to increasing costs and declining effectiveness of these mechanisms, and to their collapse. They do provide, however, important lessons about the different failures of both market intervention and market liberalisation policies. We suggest and discuss a set of critical elements needed for economic development and wealth creation in poor rural areas, and propose four basic principles to guide the search for, and design and implementation of, effective rural development strategies and policies.