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CHAPTER OUTLINE
I. Chapter 16 focuses on agriculture and its role in development. The chapter
opens with an overview of the food crises and price shocks that the world—
particularly the developing world— has experienced since 2006. The authors
then state their explicit purpose: to address the role of agriculture in economic
growth and poverty alleviation. After a summary of the sector’s special char–
acteristics, the rst section of the chapter examines the multifaceted role of
agriculture in economic development. Agriculture makes key contributions
in relation to welfare, nutrition, urbanization, labor, capital, foreign exchange,
and supply and demand.
II. The second section of the chapter examines structural transformation that
occurs when an economy begins to grow. As economies grow, agriculture
begins to account for a smaller share of both employment and GDP. Employ-
ment grows in industry— leading to a rural migration to the urban area.
However, it is important that change and growth come to the agriculture
sector as well— in order to feed the people now working in the urban- industrial
areas.
III. The third section surveys two– sector models of development. The discussion
begins with a review of David Ricardo’s The Principles of Po liti cal Economy
and Taxation (1817) and how his model initiated the development and expres-
sion of two– sector models down to the present day. The rst modern version of
the two- sector labor– surplus model by W. Arthur Lewis is studied, followed
by the examination of a revised version of his model formulated by John Fei
and Gustav Ranis (labor surplus model). Next, the neoclassical two sector
model of Dale Jorgensen is presented. In this model, an increase in industrial
production must be accompanied by a decrease in agricultural production.
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This is followed by a review of an extension of the two– sector model pro–
posed by economists Mukesh Eswaran and Ashok Kotwal.
IV. The fourth important aspect of this chapter examines the deeper questions of
how structural transformation happens and what role agricultural growth plays
in the pro cess. This can only be assessed by examining intersectoral linkages
in more detail. The Lewis and Fei- Ranis models are analyzed in the context of
linkage, followed by those of Albert Hirschman. By the early 1960s, econo–
mists’ perspectives had evolved on intersectoral linkages and agriculture’s
potential contributions to growth. This led to the argument of indirect linkages
developed by Bruce Johnston and John Mellor. Their arguments led to the intro–
duction of growth multipliers— which sought to mea sure agriculture’s contri-
butions to growth. This section concludes with a review of stability linkage at
the macroeconomic level and its impact on po liti cal and economic stability.
V. The fth section of the chapter discusses agriculture and poverty alleviation.
Here the authors argue that, on average, agricultural growth is more effective
in reducing poverty than is industrial growth. This conclusion is reached by
examining the staggering numbers of the very poor who are disproportion-
ately concentrated in rural areas. Evidence to support this conclusion is backed
by the World Bank’s World Development Report, 2008. It concludes by look–
ing at different countries and how the unique characteristics of each could
dictate the road a nation takes to improving itself and the lives of its people.
Boxed Examples
Box 16– 1: Surplus Labor in China
Box 16–2: Debates over Surplus Labor
Box 16– 3: The Nutrition Linkage to Economic Growth
The rst box examines China’s problem as a labor– surplus country to 1978. It
further discusses how the government assisted in accelerating the transfer of
workers from agricultural to urban employment and discusses migration from the
rural to the urban sector. The second box contrasts the debate over surplus labor
and growth, and, agriculture as a pathway out of poverty.
Class Notes
Open with a discussion relating the food crises that have struck many nations
around the world. Seek student input to help explain the variety of reasons this
has occurred— and how, in par tic u lar, it has impacted the developing nations of
to explain the key differences between the two. Explore the idea of linkage, made
pop u lar by Johnston and Mellor, along with the idea of the growth multipliers and
what they reveal.
Conclude this section with an overview of the best policies to promote agricul-
tural growth that will serve to enhance the overall growth of a developing nation,
1. Between 2006 and 2008, the world experienced its worst food crisis since the:
a. swine u epidemic.
b. 1930s.
c. 1970s.
d. fall of the Soviet Union.
2. According to the Food and Agricultural Or ga ni za tion (FAO) of the United
Nations, high food prices in 2008 pushed how many additional people into
hunger?
a. 20 million
b. 40 million
c. 57 million
d. 1 billion
3. Among countries categorized as low income by the World Bank in 2008,
agriculture accounts for:
a. 10% of GDP
b. 25% of GDP
c. 50% of GDP
d. 65% of GDP
4. Among the poor house holds of developing countries, house hold food expen-
ditures amount to:
a. 25% of income.
b. 30–50% of income.
c. 50–70% of income.
d. 90% of income.
5. All of the following are key characteristics of the agricultural production
function EXCEPT:
a. seasonality.
b. geographic dispersion.
c. sources of technical change.
d. diminishing returns to labor.
6. The argument that the proportion of income spent on food declines as income
rises is known as:
a. Say’s Law.
b. the Malthusian trap.
c. Engel’s law.
d. health consciousness.
7. ___________ is the systematic changes in sector proportions as economies
grow.
a. Structural transformation
b. Technical innovation
c. Developmental devolution
d. Unit– elastic supply
8. In the growth pro cess, two- sector models recognize the prime importance of:
a. time and money.
b. labor and capital.
c. imports and exports.
d. complements and substitutes.
9. Disguised unemployment refers to:
a. the underground economy.
b. unemployment that uctuates in the rural countryside.
c. earning two incomes annually, but reporting only one.
d. people who claim to be looking for a job, but have no intention of working.
10. These two basic assumptions of David Ricardo have played an important role
in two- sector models:
a. rents and taxation.
b. buyers and sellers.
c. diminishing returns and labor surplus.
d. constant returns to scale and economic ef ciency.
11. The Fei- Ranis model can be used to explore the implications of:
a. population growth and a rise in agricultural productivity.
b. enclosure movements and the rise of urban laborers.
c. becoming a resource exporting country.
d. using barter as the primary method of exchanging goods.
12. The neoclassical two- sector model was developed and formalized by:
a. Alfred Marshall.
b. John Stuart Mill.
c. Dale Jorgenson.
d. John Maynard Keynes.
13. The neoclassical model argues that there must be a balance between:
a. imports and exports.
b. industry and agriculture.
c. tariffs and quotas.
d. the pace of modernization and respect for tradition.
14. The nutritional linkage from agriculture to economic growth is based on
evidence gathered by which Nobel- winning economic historian?
a. Robert Fogel
b. Robert Heilbroner
c. Joseph Schumpeter
d. Leon Walras
15. Stability linkage operates primarily at the:
a. microeconomic level.
b. daily exchange rate.
c. macroeconomic level.
d. poorest areas in a society.
1. Food and Agricultural Or ga ni za tion (FAO), food price shock
3. Structural transformation, Engel’s Law
5. Diminishing returns, labor surplus
7. Subsistence level, institutionally xed wage
9. Intersectoral linkages, indirect linkages