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 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

Some open economies with some improvement in AgP

Some open economies with no improvement AgP

Some open economies with improvement in AgP

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