Download Agricultural Productivity and Economic Growth

Agricultural Productivity and
Economic Growth:
Empirical Analysis on the
Contemporary Developing
Countries
Motivation
• Significant number of the contemporary
Developing Countries have reasonably large
agriculture sector
• Though there is a general consensus on the fact
that value creation in agriculture is relatively less
than in other sectors it is still debatable what
type of role agriculture can play in the overall
evolution of economic growth of such
economies
• Settling such a debate will have serious Policy
Implication for such countries
Existing Literatures
• Some take improvement in agricultural productivity as a necessary
step toward a sustainable economic growth: R.Nurkse (1953) and
that of W.W. Rostow (1960)
- Most today’s developed economies
• Some other argue otherwise by mentioning the fact that even among
the present day developed economies those that had emphasized
on agriculture lagged behind those others : Mokyr(1976), Field
(1978) and Wright (1979)
- Belgium and the Netherlands
- New England and the South
• Still some others say it depends, and this position can be taken as
an attempt to reconcile the above two positions:K.Matsuyama(1996)
- All developed economies and adds Emerging Economies
Theoretical Explanation of the third
Position
• Matsuyama argues that IEDAg<1 while IEDMg>1
• Ag Pr Increases Income, but it depends on the nature of
the economy where/how this additional income is spent
- If we assume that the economy is closed, it is inevitable
that there will be not only an increase in income but also
surplus of labor; and hence Industrialization
- If we assume an open economy, an increase in income
could normally be spent on manufacturing products from
the rest of the world, and there may not be much surplus
labor since demand for agricultural products is not
limited domestically; and hence countries could stay long
without structural transformation
• The traditional view assumes basically a closed
economy
Some Descriptive Discussions:
Some closed economies with improvement
in AgP
2000
1500
1000
500
0
Years
2005
2002
1999
1996
1993
1990
1987
1984
Real GDP per
capita
1981
In constant 2000 US
$
China
Average
Productivity of
Labour in
Agriculture
Real GDP per
capita
Year
2005
2001
1997
1993
1989
1985
800
600
400
200
0
1981
In constant 2000 US
$
India
Average
Agricultural
Productivity of
Labour in
Agriculture
1000
800
600
400
200
0
Real GDP per
capita
19
81
19
86
19
91
19
96
20
01
In constant 2000 US
$
Indonesia
Years
Average
Productivity of
Labour in
Agriculture
500
400
300
200
100
0
Years
2005
2001
1997
1993
1989
1985
Real GDP per
capita
1981
In constant 2000 US
$
Bangladesh
Average
Productivity of
Labour in
Agriculture
Some open economies with some
improvement in AgP
In constant 2000
US $
Belarus
4000
3000
2000
1000
0
19
Real GDP per Capita
90
19
92
19
94
19
96
19
98
20
Years
00
20
02
20
04
Average Productivity of
Labour in Agriculture
4000
3000
2000
1000
0
Real GDP per
capita
19
81
19
86
19
91
19
96
20
01
In constant 2000 US
$
Guyana
Years
Average
Productivity of
Labour in
Agriculture
600
500
400
300
200
100
0
Years
2004
2002
2000
1998
1996
1994
Real GDP per
capita
1992
In constant 2000 US $
Tajikistan
Average
Productivity of
Labour in
Agriculture
Some open economies with no
improvement AgP
Years
04
20
01
20
98
19
95
Real GDP per
capita
19
92
7000
6000
5000
4000
3000
2000
1000
0
19
In constant 2000 US $
Estonia
Average
Productivity of
Labour in
Agriculture
600
Real GDP per
capita
400
200
Year
2005
2001
1997
1993
1989
1985
0
1981
In constant 2000 US
$
Lesotho
Avergage
Productivity of
Labour in
Agriculture
Some open economies with
improvement in AgP
6000
5000
4000
3000
2000
1000
0
Years
05
01
20
20
97
19
93
19
89
85
19
81
Real GDP per
capita
19
19
In constant 2000 US $
Malaysia
Average
Productivity of
Labour in
Agriculture
In constant 2000 US
$
Mauritius
6000
Real GDP per
capita
4000
2000
0
81 986 991 996 001
9
1
1
1
1
2
Years
Average
Productivity of
Labour in
Agriculture
Regression Analysis
• Model Specification:
-MRW’s (1992) version of the Solow ( i.e. exogenous) growth model as
a starting point: y=F(L,K)
-the model is augmented by G, which is a variable introduced to take
into account the role of agricultural productivity in growth
-In order to take into account the impact of openness of an economy on
the relationship between per capita income and agricultural
productivity, a dummy variable, D, that interacts with agricultural
productivity is introduced
- In the case of panel data regression, the paper tries to control the
effect of country specific time-invariant (or slow moving) variables
Data and Sample
• World Bank (WDI, 2008)
• It basically cover the period b/n 1981 and 2005
• those economies which had reasonably large relative size of
agriculture sector in the early 1980’s are considered( i.e. mostly
more than 20 % of GDP)
• In order to see clearly the impact of openness of the economies, of
the identified countries only those which are considered to be highly
closed and highly open economies are picked
- here openness is measured as (M+X)/GDP
• Finally, depending on the availability of data 46 developing countries
are included
• The data set includes real per capita income (2000 US $), real
average agricultural productivity (2000 US $), growth in working age
population, real gross capital formation as a percentage of GDP, real
value of exports and imports as percentage of GDP
• For the panel regression each five year is considered as one period
Conclusion
• Matsuyama’s prediction is only partially consistent with
the evidences from the contemporary developing
countries
• openness of economies negatively affects the gains in
the economic growth from improvement in the
agricultural productivity, however, this effect is not strong
enough to cause
-either a long-run negative relationship between
economic growth and agricultural productivity in the
contemporary developing countries
- or to bring large differences in the gains from
agricultural productivity between the open and closed
economies