Chapter 8 Transformation. Less Rural, Less Agricultural On May 23, 2007, the world became more urban than rural Rural economies are becoming less agricultural.

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Presentation transcript:

Chapter 8 Transformation

Less Rural, Less Agricultural On May 23, 2007, the world became more urban than rural Rural economies are becoming less agricultural Sources: Winters, P., Davis, B., Carletto, G., Covarrubias, K., Quinones, E., Zezza, A "Assets, Activities and Rural Income Generation: Evidence from a Multicountry Analysis." World Development, 37(9), (Table 2) and tabulation of Mexico National Rural Household Survey (ENHRUM) data.

Everyone Is Fleeing the Farm Income Growth and Ag Labor Shares Source: Taylor and Lybbert, RebelText: Essentials of Development Economics, 2012

Beyond Agriculture: The Lewis Model t: Traditional sector m: Modern sector MVPL t, MVPL m : Marginal value products w s : Subsistence wage LS m : Labor supply to modern sector Initial labor in traditional sector

Criticisms and Implications of Lewis Model Still an aggregate model – Who moves off the farm, and who doesn’t? Can agriculture lose labor and not output? – TW Schultz doesn’t think so (see China box) Ranis and Fei: Better invest in agriculture if want the modern sector to grow! Everything depends on markets working (Chapter 9) …and impacts of migration on rural economies (Supplemental Chapter: Migration)

Migration is Selective Source: Mexico National Rural Household Survey, 2008

Why Diversification Matters Solving poverty: Should we focus on crop production? Staples? – Hard to “move” poverty with staples if the staple share of rural household income is low Impact of global food price increases on rural welfare – Negative if food production is a small share of rural income Diversification and welfare: scale vs. risk? – Better get it right!

Livelihood Consumption Income Consumption Markets Production Output Markets Factors Factor Markets Consumption Activities Endowments The Rise of CGEs for Policy Analysis

Livelihood Consumption Income Consumption Markets Production Output Markets Factors Factor Markets Consumption Activities Endowments Q F C I U=U(C) Q=Q(F,prices) C=C(I,prices)

Consumption Markets Output Markets Factor Markets Consumption Activities Endowments Livelihood Consumption Income Production Factors Livelihood Consumption Income Production Factors