Road from Serfdom 20.docx

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