Road from Serfdom 20.docx
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Road from Serfdom 20.docx
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RoadfromSerfdom20
TheRoadfromAgriculture
by
ThorvaldurGylfason*andGylfiZoega**
ThegreateconomistArthurLewisemphasizedthedistinctionbetweentraditionalagricultureandurbanindustries.Inhisview,savingsandinvestmentoriginatesolelyinthelatter,whilevastpoolsofunderutilizedlaborcanbefoundinthetraditionalsector(Lewis,1954).Inthispaperweaimatfillingagapinhisanalysisbyconstructingamodelofrationalbehaviorinthetraditionalsector.Wewanttothinkoffarmersasrationalagentsandsoexplaineconomicbackwardnessnotintermsofhistoryormentalitybutratherintermsofamodelwithmaximizingbehavior.Ouraimistoshowthattheleveloftechnologyinagricultureineachcountrywillnot,ingeneral,coincidewiththe“frontier”technologyofthemostadvancedeconomy.Inparticular,eachcountryhasanoptimal“technologygap”thatseparatesitfromthefrontier.Inouranalysis,thesizeofthisgapturnsouttodependonfactorsthatareexogenoustomosteconomicmodelsandseldomsubjecttochange,suchasfarmsizereflectinggeography,thefertilityoftheland,theabilityoffarmerstodigestandtakeonnewtechnologiesandtherateoftimepreference.Mostsurprisingly,perhaps,thedistancefromthetechnologyfrontierturnsouttodependonthepositionofthefrontieritself;themoreadvancedisfrontiertechnology,thelargeristheoptimaldistancethatmaximizesthevalueoflandfromthefrontier.WewillbringcliometricevidencefromournativeIcelandtobearonthisissue.Further,weattempttoquantifytherelationshipbetweenstructuralchangeandgrowthbyconsideringthechangeintheshareofagricultureinvalueaddedandofmigrationtocitiesasindependentdeterminantsofeconomicgrowthwithinacross-countrygrowthregressionframework.
Theshareofagricultureinemploymentandvalueaddedhasfallenrelentlesslyaroundtheworldoverthepastonehundredyears.Untiltheendofthe19thcentury,anoverwhelmingpartoftheworkforcewasengagedinagricultureeverywhere.In1960,almosthalfthelaborforceinlow-incomecountrieswasstillemployedinagriculture,butthisratiocontinuestofall:
todayalmostafourthofthelaborforceinlow-incomecountriesworksontheland,lessthantenpercentinmiddle-incomecountries,andlessthantwopercentinhigh-incomecountries.Toillustratetherelationshipthatmotivatesthisstudy,weshowinFigure1datafrom86countries,somerichandsomepoor,intheperiodfrom1965to1998.
Thefigureshowstherelationshipbetweenpercapitaeconomicgrowthalongtheverticalaxisandstructuralchangeasmeasuredfromrighttoleftalongthehorizontalaxisbythedecreaseintheshareofagricultureinvalueaddedfrom1965to1998.Eachcountryisrepresentedbyasingledotinthefigure:
theaveragegrowthrateoverthesampleperiodandthestructuralchangefromthebeginningtotheendoftheperiod.Thefigureshowsthatadecreaseintheshareofagriculturebythirteenpercentagepointsfromonecountrytoanotherisassociatedwithanincreaseinannualpercapitagrowthbyonepercentagepoint.
Figure1.StructuralChangeandGrowth1965-1998
Inarecentstudy,Temin(1999)arguesthatarelationshipsimilartothatinFigure1canaccountforthegrowthperformanceoffifteenEuropeancountriesovertheperiod1955-1995.Inparticular,hearguesthatthemigrationoflaborfromruraltourbanareashelpsexplainthepost-war“GoldenAge”ofEuropeaneconomicgrowth,includingthedifferencesingrowthratesduringthisperiodandtheendofthehigh-growtheraintheearly1970s.Notallcountrieshavehandledthisdramatictransformationoftheireconomicstructureaswell.Inextremecases,thedevelopmentwasactivelyresisted,aswitnessedoriginallybytheinstitutionofslaverythatinsomeplacescontinuedwellintothesecondhalfofthe19thcentury.Theresistancetochangetookother,milderformsaswell:
forexample,farmworkersinIcelandwerethroughoutthe19thcenturypreventedbylawfromleavingtheiremployers,aformofserfdomthatsignificantlydelayedthetransformationoftheIcelandiceconomyfromagriculturetoindustry.
Thispaperaddstoanexpandingliteratureonthelong-runsectoralimplicationsofeconomicgrowth.Whileweemphasizeendogenoustechnologicaladoptionatthefarmlevel,othercontributionshaveemphasizedhumancapitalaccumulation.GalorandMoav(2003)modelthetransitionfromaruralagriculturalsocietytoanurbanindustrialsocietybyshowinghowthecomplementarityofhumanandphysicalcapitalinindustrygeneratesanincentiveforindustrialiststosupporteducationalreforms.HumancapitalaccumulationalsoplaysanimportantpartinthetransitioninTamura(2002).InGalorandWeil(2000),skill-biasedtechnicalprogressraisestherateofreturnonhumancapital,whichcauseshumancapitaltogrow,hencecreatingsteady-stategrowth.Jones(1999),incontrast,arguesthatincreasingreturnstotheaccumulationoftechnologyandlaborsustainsgrowth.Wedonotdisputetheimportanceofhumancapitalforthetransitionbut,instead,wanttodescribesomeofthedeterminantsofendogenoustechnologicaladoptioninagriculture.
Wearguethattheextentofthetransitionfromanagrariantoanindustrialeconomydependsnotonlyontheaccessofindustrialproducerstounlimitedsuppliesofrurallabor(Lewis,1954)andonproductivitydevelopmentsandavailabilityofworkinurbanareas(Kaldor,1966;HarrisandTodaro,1970),butalsoonfarmsizereflectinggeography,thefertilityoflandandtheabilityoffarmerstoadoptnewtechnology.InthisweareperhapsinpartmotivatedbytheexperienceofIceland,anislandinthefarNorthAtlanticwhereagriculturewasthemaineconomicactivityforcenturies,supportingapopulationthatlivedonthemarginsofsubsistence.Harshclimate,unfertilesoil,smalldisparateplotsofarablelandandapopulationnotfamiliarwithforeignculturesorlanguageshamperedeconomicdevelopmentforalmostathousandyears.Itisdifficulttoconceiveofanyformofinstitutionbuildingthatcouldhavehelpedinjectdynamismintotheagriculturaleconomy.
I.Efficiencygainsinagricultureandgrowth
Inthissectionwedescribethebehavioroffarmerswithregardtotheadoptionofnewtechnology.Ouraimistoendogenizetheextentofallocativeaswellasorganizationalefficiencygains,bothofwhichareimportantsourcesofeconomicgrowth.Wemodeltheeconomyasconsistingoftwosectors,aruralagriculturalsectorandanurbanmanufacturingsector.UnlikeLewis,weassumethatfarmersengageinmaximizingbehavior.Weareinterestedindecisionsabouttheadoptionofnewlaborsavingtechnologyaswellasintheimplicationsofthosedecisionsforeconomicgrowthinatwo-sectorworld.
Sectors
Agriculturaloutputisproducedwithlandandlabor.Landisafixedfactorthatlimitsthemaximumfeasibleproduction.Thelandissplitupintodifferentfarmsthatdifferinsizeandfertility.Thedistributionofsizeandfertilityisexogenoustoourmodelandassumedtodependsolelyongeographyandclimate.Incontrast,urbanindustrialoutputisnotconstrainedbyanyfixedfactor.Instead,outputisproducedwithlaborusingaconstant-returnstechnology.Individualsinourmodelareeitherfarmers(thatis,ownersofland),farmworkersorurbandwellers.Anindividualmaymovebetweenthesethreestates;higherfarmprofitsinduceworkerstobecomefarmers,higherruralwagescreateanincentiveforbecomingafarmworkerandforpeopletomovefromurbantoruralareas,whilehigherurbanwagespullworkerstothecities.
Markets
Thereisperfectcompetitioninthemarketforindustrialgoods,agriculturalgoodsandlaborinthetwosectors.Individualsdifferintheirpreferencesforruralversusurbanlabor.Whenrelativewagesinurbanareasrise,morepeopledecidetomigratefromthefarmstothecitiesbutnoteveryonewillmove.Itfollowsthatexpectedwagesinthetwosectorsdonothavetobeequal.Culturaldifferencesaswellaseducation,peerpressureandfamilyconsiderationsmayalsocreateanattachmenttoeitherruralorurbanliving.
AsinHarrisandTodaro(1970),therelativepriceofagriculturaloutputintermsofmanufacturinggoodsisadecreasingfunctionofagriculturaloutputandanincreasingfunctionofmanufacturingoutput:
withp’<0.Thisassumptioncapturesthedemandsideofourmodel;wedonotmodelconsumptionchoices.
Utility
Preferencesareseparableintheutilityofincome,ontheonehand,andtheutilityfromlivinginrural/urbanareas,ontheotherhand.Utilityofincomeishomogenousandlinearinincomewhileworkersareheterogeneousintermsoftheutilityofresidence.Farmersmaximizethepresentdiscountedvalueoffutureutilityusinganexogenousandfixedrateoftimepreferencer.Forsimplicity,weassumeinfinitehorizons.Atthesametimetheycomparethisvaluetothepresentdiscountedvalueofworkingonotherfarmsandswitchbetweenowninglandandworkingforotherswhenthelattergiveshigherfutureutility.
Theproductiontechnology
WeassumeaLeontiefproductionfunctioninagricultureandalinearproductionfunctioninurbanindustry:
(1)
(2)
YAdenotesthelevelofoutputofagriculturalproduceandYMismodernurbanoutput,Adenotestheleveloflabor-augmentingtechnologyinagricultureandB,technologyinmanufacturing.NAisthenumberofworkersinagricultureandNM,inmanufacturing.LisarablelandandFdenotesthefertilityofthesoil.ItfollowsthatifthenumberofeffectivelaborunitsANAisuptothetask,sustainablefarmoutputisFL.Thereareconstantreturnstoscaleinindustrybutsha
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