Download Agricultural Exports

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Kevin Gryskewich
Dr. Mutter
Intermediate Microeconomics
April 27, 2012
Agricultural Exports
I will be researching to see if agricultural exports increase with the stage of
development in a developing country. This is an interesting question to study because
once a country can produce enough food for their population they can start to export
their agricultural goods. Many developing countries still lack efficient ways to produce
agriculture and their countries people are starving. Once a country has a significant
amount of food for their people they can then start exporting their goods to gain profit.
In the past, it was essential for a country to adapt and develop new ways to produce
agricultural output. The counties that seem to adapt the fastest continued to grow while
others simply tried to feed themselves. Once a country can start feeding itself it can then
worry about other forms of production. Agricultural exports are a significant part of
growth in developing countries contrast to developed countries where they grow from
non agricultural exports. There has been many changes in the macroeconomy in the past
and they can help explain why agricultural exports are so important in a developing
country.
There were surprisingly a good amount of economic sites to help explain this
theory. A very important site I found was the Food and Agriculture Organization of the
United Nations. There is very useful data here including the Agricultural Export Value
Index along with Agricultural area and Agricultural population. For the stages of
development I will be looking at the GDP per capita from the Penn World Tables.
The economic theory that applies to the issue emerged in the 1970 by
neoclassical economist thinkers and came up with the theory of export led growth. This
theory has also influence how the World Bank creates policies for developing countries.
I have already came across a few articles that address my topic and the best one I have
indicated so far was published by Ana I. Sanjuán-López, P. J. Dawson and the paper is
titled, Agricultural Exports and Economic Growth in Developing Countries: A Panel
Cointegration Approach. They took 42 countries and using a panel cointegration
approach they look at the relationship between agricultural and non-agricultural exports
against GDP. Results show that a long-run relationship exists, the agricultural export
elasticity of GDP is 0.07 whereas that of non-agricultural exports is 0.13, and total
exports Granger-cause GDP, which supports the export led growth hypothesis. (Lopez
and Dawson 2010)
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This paper explains that it is more profitable to invest in agriculture production if the
country is poor. If the country is more developed then they it will be more profitable to
invest in industrial sectors.
Another very interesting paper was written by Maurice Schiff and Alberto
Valdes and was titled, The Plundering of Agriculture in Developing Countries. They
decided to take 18 developing countries and review their data from 1960 to 1980. Schiff
and Valdes explain that during this time there was a huge tax on agricultural production
and the government was protecting industrial production. The main idea behind taxing
agriculture even when a country has scarce resources is to hopefully direct them to
industrial production. Indirect interventions depress the prices of agricultural tradables
relative to nontradables (through their impact on the real exchange rate) and relative to
other tradables (due to industrial protection).(Schiff and Valdes 1992) These policies
affect production incentives by making agriculture less attractive than other sectors of
the economy. (Schiff and Valdes 1992) From 1960 to 1980 agricultural producers were
taxed on average about 30 percent and the indirect effects were even stronger at 22
percent. There was some major macroeconomic consequences of having such an intense
tax on agriculture. These policies caused the appreciation of the real exchange rate,
raised the relative cost of nontradable inputs, and reduced the real purchasing power of
income received from the sales of export- and import-competing commodities.(Schiff
and Valdes 1992)
Farmers became discouraged from producing output because they were not
making enough profit off of their crops. Some countries started importing their
agricultural products because the farmers started decreasing production. Such
intervention usually reduced agriculture's share of gross national product and was often
related to slower growth in agricultural production and agricultural exports and to
slower economic growth overall. (Schiff and Valdes 1992) This is a perfect example of
how important agriculture is to a developing country and although policy makers were
trying to promote industrialization they ended up hurting their country. A country needs
to be able to feed itself, then export some of the excess crops, and then they can start to
move into other sectors of the economy.
Once a country is able to feed itself, then they can start worrying about
exporting the agriculture. Once this stage of development is complete the country will
turn to more non-agricultural profit seeking exports. Macroeconomics by J.Bradford
Delong and Martha L. Olney has a entire chapter on the changes in the macroeconomy
and the changes in macroeconomic policy. This chapter illustrates some of the same
viewpoints I personally agreed with. Delong and Olney explain that a thousand years
ago almost everyone was a farmer. They explain how economic growth is also a process
of structural change and throughout history countries have shifted their labor force from
agricultural driven growth to other forms of production.
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Between the year 1100 and the start of the Civil War in 1860 the share of the
labor force engaged in agriculture fell from perhaps 80 percent to perhaps 50 percent.
(Delong and Olney 2006) But between the Civil War of the 1860's and the end of the
twentieth century the share of the U.S. labor force engaged in agriculture fell from 50
percent to 2 percent. (Delong and Olney 2006) The gap between the 1860's and the
twentieth century is only about 150 years and agricultural industries dropped 48
percent. Even in 1900, nearly one-third of the labor force was composed of farmers.
(Delong and Olney 2006)
As America became more and more developed they shifted into more
profitable industries like manufacturing, government, and other services. Other
countries were not capable of maintaining with technology or adapt as fast and they
have never been able to make the shift to other industries. If a developing country is
starving and has little food, they are not going to be able to shift to other forms of
production.
America is a prime example of how important agricultural exports are to a
society. A main reason the United States fought for their independence in the
revolutionary war was because Britain had restrictions on agricultural trade from the
new world. They also had other limitations that were hindering America’s growth. in
1776 we claimed our independence from Britain. This was America’s first step to
becoming the great economic power that we are today. After the war, the farmers who
were near the coast began growing crops for exports. While the farmers more inland
were producing crops to feed the country. In 1790 the total population was 3,929,214
and farmers accounted for 90% of the labor force. (Growing A Nation 2012) We were
able to also farm animals such as pigs and horses, as well as making a productive use of
the ox who were pulling our plows. We were working more efficiently not harder. It was
essential for us to use these animals to our advantages. To this day, other countries in the
world who are not as efficient as America still do all agricultural planting and gathering
by hand. Furthermore, we were able to stay ahead of the curve by coming up with new
farming inventions.
Eli Whitney invented the cotton gin, in 1793 which lead to the mass
production of cotton in the southern half of the country. Along with his cotton gin he
also invented a milling machine that allowed people to cut metal in an identical fashion.
This was the first time interchangeable parts were introduced to the marketplace. This
also led to the being of mass production as we know it today. In addition to the
invention of the cotton gin, Cyrus Mccormick, who invented the Horse drawn Reaper
accelerated the process of harvesting grain and agricultural output overall. He was a
very intelligent individual and he wanted to help the farmers of America. He invented
the Horse drawn Reaper in 1831 and started mass producing and selling his produce in
1840. With this invention a single farmer was able to harvest 5 times the amount they
normally did with a scythe. (USHistory.org) This single invention shaped the way
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americans were able to farm and dramatically increased our agricultural output which
led to rapid growth in the economy.
In 1837 a man by the name of John Deere revolutionized the way people
harvested crops. He invented a riding plow that was very useful and even accessible to
women and children. During the Civil War, 25 years later, women and young children of
the South would use these devices allowing the men to be away at war.(USHistory.org)
This dramatically lessened the amount of physical labor demanded to plow the fields.
John Deere has been producing agricultural equipment for over 175 years. John Deere
currently is the biggest producer of agricultural machinery in the entire world. Today,
with business entities in over 27 countries John Deere can continue to turn profits and
expand their business.
Agriculture has revolutionized other parts of the world and another prime
example is the world’s second largest economy, China. China has the largest population
in the world, and throughout their history became one of the world's largest producer of
farm outputs. The first trace of agriculture in China can be dated all the way back to
9000 BC. The first rice grown appeared about 1000 years later in 8000 BC. Jumping to
3000 BC agriculture can be seen getting closer to major cities and civilizations. Around
this time they adopted other cultures farming techniques and began to grow wheat and
barley. From 400 to 300 BC the chinese formulated a horse harness that was efficient,
and now they could start using horses to do the labor intensive work. Some other
developing countries were not able to adapt as quickly as the Chinese were to these new
harnesses and they suffered for it. China was able to work harder, more efficient, and
produce more output, because of these new harnesses.
Another interesting time period for agriculture in China was from 1850 to
1855. In the beginning of this time period Chinese food is introduced to America. Now
they have even a larger market for their agricultural products which will allow them to
grow and prosper. In 2002 China joined the world trade organization. The economic
super powers of world, which included the United States, let China into the organization
once they felt they had met the standards. This was a huge step in growth for their
country. Now the Chinese were able to export to markets they could not do before. It
was also a sign that China was on the right track and was now an acceptable trade
partner with developed nations. With new reforms and the acceptance into the WTO
China started rapidly developing. “Today, China produces 18% of the world’s cereal
grains, 29% of the world’s meat, and 50% of the world’s vegetables.” (Shurtleff) In the
future we can expect the Chinese economy to grow significantly. Being able to feed
your enough to produce agricultural output is a good sign for a developing country.
With open trade routes China can continue to grow and expand its position in the world
market place.
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Some developing countries still lack efficient ways to produce agriculture. It is
unfortunate that with all of today’s modern technology there are still some people who
are farm with their hands. It is very interesting to see how agriculture output influenced
the superpowers of the world today. Through history many inventions have been
created to help ease the pain of harsh physical labor. In developing countries, investing
in the agriculture sector is a very easy way to grow the economy as a whole. Likewise,
investing in more industrial sectors will promote growth if the country is already well
developed. In the past, we have seen progress in the growth of agriculture across the
world. In the future it will be exciting to see what other inventions are created to help
agricultural output.
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Work Cited
Growing A Nation. "Historical Timeline 17th-18th Centuries." Agriculture in the
Classroom.Web. 10 Apr. 2012.
<http://www.agclassroom.org/gan/timeline/17_18.htm>.
Olney, Martha L. "Changes in the Macroeconomy and Changes in Macroeconomic
Policy." Macroeconomics. By J. Bradford Delong. Second ed. New York: Gary
Burke, 2006. 468-69. Print.
Sanjuán-López, A. I. and Dawson, P. J. (2010), Agricultural Exports and Economic
Growth in Developing Countries: A Panel Cointegration Approach.
Journal of Agricultural Economics, Web. 10Apr. 2012
61: 565–583. doi: 10.1111/j.1477-9552.2010.00257.x
Schiff, Maurice, and Alberto Valdes. "The Plundering of Agriculture in Developing
Countries." The International Bank for Reconstruction and Development, 1992.
Web. 4 Apr. 2012. <http://siteresources.worldbank.org/
INTTRADERESEARCH/Resources/5448241146153362267/The_Plundering_of_Agric_Prices_in_Dev_Countries.pdf>.
Shurtleff, William, and Akiko Aoyagi. "SoyInfo Center." Soyinfocenter.com. Soyinfo
Center, Lafayette, Califorinia. Web. 03 Mar. 2012.
<http://www.soyinfocenter.com/HSS/china1.php>.
"25c. Inventors and Inventions." Inventors and Inventions [ushistory.org].
Independence Hall Association in Philadelphia, 2012. Web. 14 Mar. 2012.
<http://www.ushistory.org/us/25c.asp>.