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American Economic Association

Agriculture and Structural Transformation in Developing Countries: A Survey of ResearchAuthor(s): Bruce F. JohnstonSource: Journal of Economic Literature, Vol. 8, No. 2 (Jun., 1970), pp. 369-404Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/2720471 .

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Agriculturend StructuralTransformationn Developing

Countries:A SurveyofResearchBy BRUCE F. JOHNSTON

FoodResearchnstitute,tanford niversity

Thisessay,whichhashada very onggestation eriod,tems romninvitationy the nternationalommitteeorSocial SciencesDocu-mentationor he author o prepare book-lengthurvey fresearchand bibliographyelatingoagriculture'sole n economic evelopment

as one of series f urveys eingnitiated y heCommittee.tprovedto be impossibleocarry hat riginal roject ocompletion,ut amdeeply ndebtedotheCommitteend tsSecretary eneral, rofessorJeanMeyriat,orhaving ncouragedme to undertake review f theliteraturen thisdiffuseut mportantubject. he authors also in-debted o theCommitteeor hegrantffunds hat upportedheworkof SorenNielsen s a research ssistantnd to Dr. Nielsen, ow oftheEconomics epartmentt Simon raserUniversity,orhisskillfutls-sistancenpreparingummariesfmany f thecontributionshat rereviewed.

THis REvIEwfthe iteratureelating oagriculture'sole n economic evelop-mentdeals with subject hat s vast andnot clearlydefined.The emphasis s oncontributionsy agriculturalnd generaleconomistshat ppearto make ignificantcontributionso an understandingf thedistinctiveeaturesfthemodernizationfagriculture,process iewed s part ftheoverall ransformationfa traditionalcon-omy.

After shortummaryn Section oftheempiricalvidencen the ecular ecline fagriculture'share n GNP and in laborforce, ectionI is devoted oan examina-tionof various heoreticalxplanationsftheprocess fstructuralransformationndsome relatedpolicy ssues. n Section IIthecriticismyV. W. Ruttannd others fdual economyndgrowth tagemodels ssummarizednd a fewof the effortso

elaboratemore sophisticatedmodelsarenoted. inally,ttentions givenn SectionIV to a number f contributionshatarepertinento the nterrelationshipsetweenagriculturend industryn the courseofdevelopment.n addition oT. W. Schultz'sindustrial-impactypothesisndPaulBair-och'svery ifferentnalysis fagriculture-industrynteractions,hegeneral roblemofmaximizinghepositive,rowth-promot-ing nteractionsetweengriculturalnd n-

dustrial xpansions examinedn the ightof HarryJohnson'sheoryfdevelopmentas a generalizedrocess f capital ccumu-lation.

I. The SecularDecline ofthe AgriculturalSectorn theCourse fDevelopment

Oneofthemost irmlystablishedmpir-ical generalizationsn economicselates othe ecular ecline fthe griculturalopu-

369





Johnston: Survey f Research 371

workers n thatsector. On thebasis of hiscross-section nalysis, Kuznets finds thatthe relativeproduct per worker n the Asector n the ow-income ountries s partic-

ularly ow. Thus the contrast etween thedevelopedand underdeveloped ountriesnproduct per worker n agriculturemustbeeven greater than in total product perworker.As a tentative xplanation, uznetspointsout that thenegativecorrelation e-tween thepercentage hare of theA sectorin the labor forceand its relative evel ofproductper worker uggests hat countrieswith lower productper capita and largershares of their abor force n the A sector

may have an oversupply f aborrelative ocapital,hence a lower productper workerin the A sector than in the countrywideproduct.The analysis of long-term rendsindicatesthat productper worker n t-hesector rises relative to the countrywideaverage,but thetrend s not as clear cutasthe contrast n the cross-section nalysis.The timeseries data also indicate thatrela-tive productper worker n the M sectorrisesgenerallywhereasproductperworkerin theS sectordeclinesrelative o thecoun-trywideverage.

Patternsf ndustrial rowth

More recent research relating to theprocess of structural hange has gone be-yond merelydocumenting he secular de-cline in the relative mportance ftheagri-cultural sector.Chenery's1960 article on"Patternsof IndustrialGrowth" [18.] ini-

tiated a seriesof studies aimed at estimat-ing the natureof therelationships etweeneconomic development and industrialstructure. n this first tudy a regressionmodelwas applied to cross-sectionata for51 countries, sing per capita incomeandpopulation as explanatoryvariables in alog-linear equation; the dependent vari-ables are the sharesof primary roduction(agriculture nd mining), ndustry manu-facturingnd construction),nd services n

GNP. The cross-sectionnalysisyieldstheresultthat the "growth lasticity" orpri-mary ndustryagriculture nd mining) is.494 and the growth lasticity oragricul-

ture alone is .474. The growth lasticitiesfor all other industrialsectors are muchhigher:1.362 for ndustry, .288 fortrans-port and communications,nd 1,066 forother services.' The general pattern ofgrowth s reflectedn a risein the shareofindustrial utputfrom17 per centat a percapita income evel of$100to 38 percent ta level of$1,000;manufacturinglone risesfrom 2 percent o 33 percent verthesameincome range, and income fromprimary

productiondeclines from45 to 15 percentofthetotal.

A recent paper by Cheneryand LanceTaylor [19, 1968] extendsthe analysis inseveraldirections. his paper,whichdrawson Taylor'sdoctoraldissertations well as anumber of other empirical investigationscarriedout sincepublication f the 1960ar-ticle,makes use oftime eries nd cross-sec-tion data for both advanced and underde-veloped countries.Econometric echniquesare applied to test foruniformitiesn pro-ductionrelations s revealed by timeseriesand cross-section ata and for systematicshiftsntheserelations vertime; success-ful attempt s made to improvethe esti-matesof theserelationsby grouping oun-tries in accordance with predeterminedcriteria.

Regression nalysiswas applied to a sam-ple of54 countries hatrangefrom he ow-

est to the mostdeveloped,with advanced1 Inhis monumentalmpiricaltudy f ndustrial

Growthnd WorldTrade,Maizels [81, 1963] cal-culates similar growthelasticitiesusing cross-sectiondata for1955 (30 countries) nd pooledcross-sectionime eriesdatafor omeofthemajorindustrialountriesor electedyears etween 899and 1957.The elasticitiesorhis"food, everages,and tobacco"category1.10 forthe cross-sectionand .78for hemixed ime eries ross-section)rehigherthan Chenery's, ut presumably his ismainlybecause his categoryncludesbeveragesand tobacco.



372 Journal f Economic iterature

countriesccountingor bout nly quar-ter fthe otal. henumber fobservationswas increased reatly y pooling ross-sec-tion ata and time eries atafor -heeriod

1950-63. he simplestegressionses onlyper capita income nd population s ex-planatory ariables,ut thefit s improvedappreciablyn other egressions hich n-clude additional xplanatoryariables: heshare of grossfixed apital formationnGNP,the hare fprimaryxportsnGNP,and the shareofmanufacturedxportsnGNP.

A particularlynterestingeature ftheChenery-Tayloraper s the separate nal-

yses f hree ifferentevelopmentattemswhichwere uggestedy a series f tatisti-cal experiments.t wasfound hat herela-tionsbetween hanges n industrialtruc-ture nd rising ercapita ncome ifferp-preciably or countrieslassifieds: (1)"large countries,".e., with populationgreaterhan15 million; 2) "small coun-tries, ndustry-oriented,".e., with theirtradeoriented oward xports f manufac-turedproducts; nd (3) "small ountries,primary-oriented,.e.,with heir rade ri-ented oward xportsf primary roducts.The lastgroup fcountrieseveals devel-opmentpattern hatis notablydifferentfrom he first wo. n thisgroup, rimaryproductionwhich ncludes etroleumndminingn Chenery'slassification)xceedsindustry p to an income evel ofnearly$800 whereas for large countries-andsmall, industry-orientedountries-indus-

trialproductionxceedsprimary roduc-tion t income evelsofabout$275.Vene-zuela, Malaya,and Iraq, whichhave thehighest ndices of primary rientation,reflectheeffect frichnatural esourcesonproductiontructureost learly.

Anothernterestingeature f this1968paper s a preliminaryeportntheanaly-sis ofdisaggregatedndustrialrowth at-terns. nalysisn relationo individualn-dustriesharpenedhedifferencesetween

the three developmentatterns"eferred

to above. Whereasa small,primary-ori-ented ountryn themiddle ncome angetends to have onlyabout 60 percent smuch ndustrys a large ountry,hediffer-

ence varies greatly mong ndustries. swouldbe expected, hedifferences con-centratedn sectorshat reparticularlyf-fected y nternationalrade ndcompara-tive dvantage.

Certain eneral riticismsavebeendi-rected gainst he use ofbroad ndustrialcategoriesn analyzing he developmentprocess. n the early 1950s Bauer andYamey 7, 1951;8, 1954]and several therauthorsriticizedtudies hbatad stressed

the mportancef theprocess fstructuraltransformation.uttan's ummaryf thisdebate 115,1968]notes hat hecriticismsofthevalidityf theFisher-Clarkmphasison theshift rom rimaryo secondaryotertiaryctivities as directedt thearbi-trarinessfthe distinctionsndthe ackofuniformityf the income elasticities fproductsn the three ategories.In fact,an importanteason or hehigherncomeelasticity f demand for manufactured

productsn aggregate ould eem o be thefact hat t is a more pen-endedategorythanAllFoodbecauseofthe lmost nlim-ited possibility f new productsbeingadded toconsumptionatterns;his spectdoes not eem o havereceivedttentionnthe iterature.)t has alsobeennoted hatofficialtatisticsn occupational istribu-tion conceal the considerablemount ftime pent ymembersf farm ouseholds

onsecondaryndtertiaryctivities-handi-craft roductionn the econdaryategoryand transportation,rading,nd personalservicess tertiaryctivities.

It has beenfurthermphasizedhat heseculardecline fagricultureas been re-lated othefact hat ertainctivities,uchas buttermaking, avebeentransferredononfarm nterprises,nd thatmanyfarminputs ormerlyroduced nthefarm avebeenreplaced yoff-farmnputs roduced

by the ndustrialector.W. 0. Jones, ol-




lowing hetraditionf Barger ndLands-berg'shistoricaltudy f Americangricul-ture, laces major mphasis n this trans-fer of function"spectof the processof

structuralransformation59,Jones,970; ,Barger nd Landsberg, 942].A recent tudyby Folke Dovring 23,

1967] has madean importantontributionby providingstimatesf themagnitudefthe indirect"off-farm)aborused for g-ricultural roduction. he tremendousn-creases n productivityf farmabor n theUnited tateshave,of course, eenassoci-atedwith greatncreasen theuseofpur-chased nputsnd ncreasingubstitutionf

capital or abor s the size of thefarma-borforce as beendeclining. ovring'ssti-mates f"aggregatedaborproductivity"nU.S. agriculturendicate hat he ssociatedincreasen "indirect"abor nputs as beensurprisinglymall.A rapiddeclinenthedi-rect (on-farm)agriculturalabor forcefrom enmillionn the1920s o fourmillionin 1960 was associatedwithonlya smallincreasen the ndirectaborusedfor gri-cultural roduction-from.5 millionmanyears r somewhat oren1920 o about2million n 1960. The greater fficiencynthe manufacturef inputs btained romthe industrialector, esulting rom d-vances nscientificnowledgendtechnol-ogy,hasthus een a dominantactorntheremarkablencrease n aggregatedaborproductivitynthe griculturalector fanadvanced conomyike that f theUnitedStates.Dovringgeneralizeshatthehigh

rates f ncreasen aborproductivitynag-riculturere " a function f thestage ofeconomic evelopmentnwhich he coun-try indstself . . and oftherelative ectorproportionsetween griculturend otherindustries"23,Dovring, 967, p. 20,22].

II. TheoreticalxplanationsftheProcessofStructuralransformationndRelatedPolicy ssues

The inverserelationshipetweeneco-

nomicdevelopmenteflectedn rising ercapita ncomesnd the decline n therela-tive hare fagriculturen national roductand laborforce as given ise o a number

of attemptso interprethisphenomenon.Most nfluentialn theirmpact n the deasof developmentconomistsnd the policyprescriptionshat they have enunciatedhave beenthetwo-sectorr dualisticmod-els thathave sought o identifyhe crucialfeatures f the interrelationshipsetweenagriculture,oughlyquatedwith he sub-sistence" r "traditional"ector, nd themore apidly rowingmodern"r capital-ist" ector f a developingconomy. tten-

tion s givenfirst, owever,o the variousattemptso explain hefactors esponsiblefor he bserved hangesn ndustrialtruc-ture nthe ourse fdevelopment.

Virtuallyll ofthe writers hohaveat-temptedoexplain heprocess f tructuraltransformationnd the seculardecline nthe relativemportanceftheagriculturalsector ave stressed he roleofchangesnthe compositionf demandwith ising ercapita ncome 21, Clark,1957-andespe-ciallypp. 339-40 of the 1940 (first) di-tion; 101,Ojala, 1952; 66, Kuznets, 957and 68,Kuznets 966;15,Campbell, 960].Particularmphasis as beengiven o thefact thatthe ncome lasticityf demandforfood s almost lways essthanone-asimplied yEngel'sLaw-and that t tendstodecline s higherevels fper capita n-come reattained.2heneryuggests,ow-ever, hat hangesn supply onditionse-

sulting rom hangesn factor osts ssoci-atedwith ncreasesnthe izeof country'sdomesticmarket re alsohighlymportant[18,Chenery,960; 9,CheneryndTaylor,

2A chapter n "Factorsnfluencinghe TrendofFood Consumption"n FAO's Stateof Food andAgriculture33.] for 1957,a very seful ummarybased on cross-sectionnd time-series ata for anumber f countries,emonstrateshe considerableuniformityn the relationship etween incomelevels and food consumptionatternssee also 13,

Burk and Ezekiel, 1967].



374 Journal f Economic iterature

19681.The changes in costs are attributedprimarily o scale effects nd externalities.The increase n the size of the market s, ofcourse, a function f rising per capita in-

comes and increased specialization nd ex-change as well as populationgrowth.Kuznetshas also emphasized"the mpor-

tance of changes n theproduction r supplyside in explaining hanges n the industrialdistributionf total product mongthe ma-jor and minor sectors . ." [68, Kuznets,1966, p. 104]. He suggests that the veryprocessesof industrializationnd urbaniza-tion have required changes on the supplyside. Especially relevant n this regard is

the large increase in "marketing ervices"included nretailoutlaysforfood na high-income urbanized society. Data that Kuz-nets presents or he U.S. and Sweden showa verysharp decline in the percent of in-come devoted to food in terms of its pri-mary cost-its value at the farm gate orpoint of import-whereas here has been aconsiderable increase in the share of in-come spent on the processing, ransporta-tion,and distribution f food products. n

the U.S. during the years 1949-57, only10.4 percent of personal consumption x-penditurewas devoted to food as a primaryinputbut 13.2percentwas devotedto "mar-ketingservices" with the result that foodexpendituret the retail evel accounted onaverage for 23.6 percent of private con-sumption xpenditure uring hatperiod,arelativelymalldecline from 2.6percent n1869 [68, Kuznets, 1966,p. 275]. Although

some oftheadditionalcosts associatedwiththese services were "imposed" upon con-sumers, hegrowth f demandforprocess-ing, transportation,nd distribution er-vices was also a resultof various technicalinnovations and other factors thatinfluenced onsumerpreferences.Kuznetsfurther tresses that the innovationsthathave changed the characterof goods andservices available to consumers, s well aschanges in relativeprices associated with

differentialhanges n productivity,avehad a significantmpact n altering hecompositionffinal emand.

Some of themostmportantndcontro-

versial ssues fdevelopmentolicy evolveabouttheinterpretationf the process fstructuralransformation,nvolving s itdoes therelative ecline fthe griculturalsector ndthe ncreasinglyominantosi-tionof thesecondarynd tertiaryectors.To some, his structuralransformationssimply consequence f development-ofthe ncreasenproductivitynd ncomesnthevarious ectors f an economyhat n-tails hanges n thepattern fconsumere-

mand nd thecompositionfoutput. therwriters ake the position hat structuraltransformationhould be viewed notmerely s a consequence f developmentbut as a process hat hould e deliberatelyfostered y policymeasures o acceleratedevelopmentnd to ensurethatlow-in-come,pre-industrialocietieswill succeedin realizing heir oals f chievingelf-sus-tained conomicrowth.

Argumentselatingothedesirabilityf

deliberatendustrializationave a longhis-tory nd have emphasizedmanydifferentaspects.Given he possibilitynd the goalof rising er capita incomes,n whichwidening ange of nonfarm roducts ndservices onstituten ncreasinglymportantfractionfconsumerxpenditure,ncreas-ing relianceon imports f manufactuLredproductsinancedy primaryxportsstheonly lternativeo a domestic ransforma-

tionnthendustrialtructurefproduction.The literatureealingwith he trade s-pectsofdevelopmentroblemss huge,nodoubtreflectinghe ongtraditionnd thehighly eveloped tate of this branchofeconomic heory.n a paperon "Interna-tional rade nAgriculturalroductsn Re-lation o Development,"olley ndGwyerhavereviewedhe iteraturef herelationsbetween griculturalradeand economicdevelopmentnd have examinedomeof





376 JournalfEconomic iterature

eties frice,wheat, nd maize, s theviewthat hedevelopedountrieshouldmodifytheir griculturaloliciesn a drasticman-ner to enablethe developingountrieso

shift rom situationf argenet mportsffoodgrainsn the 1960sto substantialetexportsy 1985 32,FAO,1969,Vol. I, pp.540-58].

Another ajor onsiderationhat as mo-tivated mphasis n industrializationasbeen preoccupation ith heexpansionfnonfarmmploymentpportunitiesoragrowingaborforce.Arthur ewis' well-known rticlesn"Economic evelopmentwith Unlimiteduppliesof Labour" [75,

1954 nd 76, 1958]havebeenmost nfluen-tial nfocusingttentionnthedynamics-pects fcapital ccumulationnd growthna dualisticconomy.ewis,whoregards ismodel s an updated ersionf he lassicalgrowthmodel,postulatedhat n denselypopulatedunderdevelopedountriesikeIndia,Egypt, r theWest ndies, thererelarge sectors f the economywhere themarginal roductivityf labour s negligi-

ble,zero,r evennegative."ewis'firstr-

ticle appearedat a timewhen Nurkse'sbook 94,1953]on capital ormationn un-derdevelopedountriesnd other ontribu-tionshad aroused reatnterestn thephe-nomenon f "underemployment"r "dis-guisedunemployment"n agriculture.ntheir ookonThe DevelopmentftheLa-bor Surplus conomy, ei and Ranis [29,1964]formallyncorporatedstageof "re-dundant" griculturalabor characterized

byzeromarginalroductivitys an impor-tantfeature f their model. Lewis andNurkse, owever,ook more lexible iewand theirconceptof "surplus abor" n-cluded nassumptionhat,fnecessary,heeffectsnagriculturalutputf he ransferof farmworkerso nonfarmmploymentwouldbe offsetyadjustmentsithinheagriculturalector,ncluding illingnessnthepart ftheremaining embersffarmhouseholdso work arder.nhisrecentx-

aminationf "Economic evelopment ithSurplus Labour: Some Complications,"LloydG. Reynolds109, 969] uggestshat"labour lack" s perhaps better erm o

describe a phenomenonwhichhe, likeLewis and many thers,egards s an im-portant eaturefunderdevelopment.

Thecrucial eature fLewis'model shisanalysis f the dynamic rocesswhereby,givenfavorable onditions,he surplus fmanpowern the "subsistence"r tradi-tional ector,which s dominatedy, butnot confinedo traditionalgriculture,sabsorbed ythemodernr "capitalist"ec-tor. ewis'model ndmost fthbeater wo-

sectormodelshave emphasizedn impor-tant symmetryn theproductionelationsprevailingn the traditionalnd modemsectors.he traditionalector,nwhich hebulkof an underdevelopedountry'saborforce s engaged,s characterizedy rela-tively rimitiveechniques f production,very imited se ofcapital quipment,ndlow productivity. oreover, griculture,petty rade, nd other omponentsfthesubsistenceector ave a specialcharacteras "self-employment"ectors f theecon-omybecauseof institutionalrrangementssuch as the peasant arm ouseholdwhichis both unitof consumptionnd of pro-duction. Ience, orkersnthese ectorsreable to eke out an existence ven thoughthe marginal roduct f somemembers fthe aborforcemaybe lessthan heaver-age product hich oughlyeterminesheirlevel fconsumption.

Employmentpportunitiesn themodernor "capitalist" ector,however, re dis-tinctlyimited. roductions based uponconcentratedwnershipf capitalequip-ment and the hiring f wage laborforprofit-makingurposes. mploymenthustendsto be offered nlyup to the pointwhere the product f the lastworkersequal totheprevailing agerate.Andbe-cause capitalformationn the emergingmanufacturingectorhas not proceeded



Johnston: Survey fResearch 377

very ar, hedemand or abor-determinedby thedownwardlopingmarginal roduc-tivitychedule f abor-will e small ela-tive o the argenumber f workersn the

traditionalectorwho are ready o acceptemploymentta wage somewhatbove heincome evel in the subsistenceector. nLewis' formulation,nlike the Fei-Ranismodel, t mattersittle whetherarningsnthe subsistanceector re determinedb-jectively ythe evel of peasant roductiv-ity,or subjectivelyn terms f a conven-tional tandard f iving" 78,WV.. Lewis,1968].Ohkawa and Minamihave arguedthatnJapan, ntil "Lewis urningoint"

was reachedn theearly 950s, hesupplyof abor xceeded hedemand t the ndus-trialwage rate so that he supply f aborwas effectivelyunlimited"ven thoughtherewas a secular pward riftfsubsist-enceearningsecause frising roductivityin agriculture99, Ohkawa and Minami,1964; 89, Minami, 968]. A capitalistur-plus will,of course, e generated ecauseof the ntra-marginalaboremployed,ndreinvestmentf the profitsn subsequentperiodswill ead to rightwardhifts fthbemarginal roductivitychedule of laborwith heresult hatmore ndmoreworkerswillbe absorbed ytheexpanding apital-ist sector. n fact, ewis' principal urposein formulatingis modelwas to providemechanismhat would explain he rapidgrowth f savingnnational ncomen theearly tages fdevelopmentf an economywhose growths due to the expansion f

capitalist orms f production78,W. A.Lewis,1968].Eventually,rovidedhis x-pansionprocess s not cut short, capitalcatchesup with aboursupply" nd thetwo-sector odel sno onger elevant.

In an ingeniousndprovocativeheoreti-cal analysis f a dual economy, orgensonhas comparedclassical"nd"neoclassical"versions. is versionf the classicalmodelis intended o approximatelosely he Fei-Ranismodelwhichsmore ully laborated

thanthe essentially euristicmodelpre-sented yLewis.Thefirst f twoessentialdifferencesetweenhe lassicalmodel ndJorgenson'seoclassicalmodel s thatJor-

genson ejects hepossibilityf redundantagriculturalaborand assumes hatmar-ginalproductivityf abor nagriculturesalwvaysositive. he second ndmore ru-cialcontrasts that eassumeshatt sthegrowthfan agriculturalurplus hatde-terminesherate fgrowthfnonfarmm-ployment.4ince t s quiteobvious hat,na given ituation,hegrowthf nonfarmemploymentan be restrictedy eithershortagefcapital r a shortageffood or

the nonfarmopulation,t is impossibleoestablishytheoreticalnalysiswhichwillbe the imitingactor.

Jorgenson'siewthat growinggricul-tural urpluss both necessaryndsuffi-

' The fullest ormulationf Jorgenson'snalysiswas presented t the Conference n Subsistenceand PeasantEconomics ponsored y the Agricul-tural DevelopmentCouncil and contained n avolumeedited by Wharton 139, 1969]. His neo-classicalmodel,with lightlyifferentssumptions,was presentedn an earlier rticle 60, Jorgenson,1961]. Jorgenson'sestof the alternativemodelswhich, e believes, tronglyupportsheneoclassi-cal model nd requires ne to "reject" he classicalmodel, s alsocontainedn AdelmanndThorbecke[1, 1966]. Stephen Marglin'sComment n thatvolume,which lso considershefuller ersion fthepaperpresented t the Conferencen Subsis-tence and Peasant Economics, aises some verycogent questionswithrespectto the validity fsome of the tests ppliedby Jorgenson. majorpart of Jorgenson'sestof the surplus abor hy-pothesis s based uponconfrontingmplicationsftheclassicalmodelwithdatabearing ponJapan'shistorical xperience. ut Marglin rguespersua-

sively hat the mplicationsf the classicalmodel'turn ut on close examinationo be implicationsfassumptions orgensonand others)have gratui-tously uilt nto hemodel,not mplicationsf theclassical theory" 83, Marglin,1966]. A recentarticleby Minami,whichpresents similarbutmoredetailed theoreticalriticismf Jorgenson's"tests," otes hat everal f the"consequences" fJorgenson's odelderivefrom isuse ofa Cobb-Douglas productionunction. inami's rticle lsoprovidesmpirical videncen support fhis viewthatLewis' two-sedtor odelwasrelevanto Japa-nese experiencentil "Lewis turningoint"wasreachednthe1950s 89,Minami, 968].




cient conditionfor growth f the nonfarmsector eads him quite naturally o suggestthat capital investment hat accelerates thegrowth fagricultural utput s likely o beimportantnpermitting low-income con-omyto escape fromhis versionof the lowlevel equilibrium rap 60, Jorgenson,9611.In a pair of articles ublished n 1962,Enkealso argued that capital should be com-bined withrural and and labor to some ex-tent and not be combined only with laborthat has migrated to urban industry 26,Enke, 1962; 27,Enke,1962].

It is somewhat shockingto agriculturaleconomists hatgeneral economists uch as

Jorgensonnd Enke have felt t necessaryto argue thecase for ome nvestmentn ag-riculture. ut it is probablytrue, s Mellorhas suggested 88, 1967, p. 25; also see 91,Nicholls,1963],thatfascination n the partof a number of developmenteconomistswith the conceptsof disguised unemploy-ment or underemploymentn agricultureand with abor surplusmodels has contrib-uted to a tendency"to minimize the dif-ficult roblemofhow a surplus s tobe ex-

tractedfrom griculture." his preoccupa-tion with "surplus labor" often seems tohave encouragedneglectof theagriculturalsectoras well as a tendency o assume tooreadily hat surplus an and should be ex-tractedfromagriculture,while neglectingthe difficultequirementshatmust be metifagricultures to playa positiverole nfa-cilitating verall economicgrowth.

Agricultural conomistswho have beeninfluencedby insightsderived from theLewis two-sectormodel have argued thatthe nature of the interrelationshipse-tween agricultureand nonagriculture tdifferenttages ofdevelopment ave impor-tant implications or agriculturaldevelop-mentpolicy. Johnstonnd Mellor,for ex-ample, have stressedthe importanceof aparticular ype of strategy or agriculturaldevelopmentn countrieswhere ittle truc-tural transformationas takenplace. They

have argued that n such economies gricul-tural abor is a relatively bundant and low(opportunity) ostresourcebecause of theslow growth f demand for ndustrial abor.Therefore he expansion f agricultural ro-duction should be based mainly on labor-intensive, apital-saving echniques, elyingheavily on technical nnovations 54, John-ston and Mellor, 1961; 87 and 88, Mellor,1966 and 1967].

On the basis of historical xperiencenJapan, Taiwan, and other countries, t hasbeen suggested hat the productivity f theexisting n-farm esources f abor and landcould be increased greatly y technical n-

novations nvolving s key elements: (1)agricultural esearch eading to the devel-opment and selection of higher-yieldingvarieties; 2) increased pplication f chem-ical fertilizers;nd (3) therange of activi-ties thatfacilitatewide use of fertilizer-re-sponsivevarieties nd increased pplicationof fertilizers, ogetherwith the associatedpractices required to realize the yield po-tential f the new varieties.

Emphasis on raisingthe productivity f

farm-suppliedesources s related o thedis-tinction hat Ohkawa makes between "in-ternal" nd "external"nputs [98, Ohkawa,1969]. In economiesin which little struc-tural transformationas taken place, thecommercialmarket orfarm roducts endsto be smallrelativeto thenumberoffarmhouseholds, thereby imposing a severeconstraint n the use of purchased nputs.Rapid expansionof cash income fromex-port crops has oftenprovideda means ofeasing this constraint. he projectionsre-viewedearlierwithrespect othegrowth fagricultural xports uggest hatfor he de-velopingcountries, enerally, hispossibil-ity is not likelyto alter substantially hefactthat hegrowth feffective emand forfarmproductswill be constrainedby therate of structural ransformation,lthoughsome individual countries may achieverates of increase in export earningswell



Johnston: Survey of Research 379

above the average by enlarging heir hareinworldmarkets. ome ofthemultisectoralmodels discussed in the following ectionconsiderthese interrelationships,ut it iswell to emphasize here the interdepen-dence that exists between the choice oftechnique in agriculture, he intersectoralallocationofresources s it affects he pro-cess of structural ransformation,nd thepotential hatexists or nlarging arm ashincomesand foreign xchangeearningsbyexpanding griculturalxports.

Those who have argued the advantagesof a labor-intensive,apital-saving trategyfor promoting agricultural development

have also emphasized he mportance fthepotential that exists for the internationaltransfer f technical innovations.Until afew yearsago thisviewwas to a consider-able extent n articleoffaith, hatsuccessrealized by agricultural esearchprogramsin temperate egionscould be repeated inthe tropicaland subtropical egions wherethe contemporaryunderdeveloped coun-tries are mainly located. Agricultural e-search nthedeveloping ountries ad been

largelyconfined o important xport rops,and the success achieved in developinghigh-yieldingarieties f sugarcane,cocoa,oil palm,and other ropicalplants has beencited in supportof the view thatstrength-ened research programswould generateprofitableyield-increasingnnovations p-plicable tothemajorfoodcropsofthesere-gions [84,McPherson nd Johnston,967].

Accumulatingevidence concerningtheresponsivenessof small-scale farmers toeconomic incentivesunderscoresthe im-portance of innovationsthat offer ome-thingworthwhile o "extend."Just decadeago W. 0. Jones 57,1960]brought ogethera persuasive collectionof evidence chal-lengingthe thenprevalent tereotype on-cerning tradition-boundarmers"n tropi-cal Africa.A major contributionf Schultz'sTransformingraditional griculture121,1964] is its eloquent emphasison the im-

portanceof incentives nd the availabilityof profitable nnovations.A number ofeconometric tudies,ably summarizedbyKrishna 64, 1967], have providedmorefor-mal evidence concerning he price respon-siveness f farmersndeveloping ountries.5

The remarkable results now beingachieved withthe high-yieldingarieties fwheat,rice, and maize have provideddra-maticsupportfortheview tllat a large po-tentialexistsfor ncreasingfarmoutput nthe developingcountries y technical nno-vations hat ncreasetheproductivityfthefarm uppliedresources f aborand land [2,Asian DevelopmentBank,1969;139,Whar-

ton,1969]. Experience eading to thedevel-opmentof the Mexican"dwarf"varieties f

The volumeSubsistence griculturend Eco-nomicDevelopment 139, Wharton, 969] con-tains a number f importantontributionshichexamine he influence f social,institutional,ndcultural actorsnd their ffectn themotivations,values, and behaviorof peasant farmers.GeliaCastillo's delightful nd devastating ritiqueofRogers' attempt o characterizea subculture fpeasantry"nd Firth'sdiscussion f the influenceof social structure pon peasant economies re

especiallynoteworthy. significantointempha-sized byCastillo s that nstances itedto demon-strate the lack of innovativenessn the part ofpeasantfarmers ave frequentlyeen due to thefailureof researchworkers nd agriculturald-ministratorso take accountof actual conditionsandconstraintst thefarm evel.The assertionhat"farmersre simply esistant o change"can be aconvenientxcusefor thefailure f scientistsndadministratorso make available feasible nnova-tionscharacterizedy an acceptable evel of riskand promisingeturnshat dequately ompensatefor the extra abor and cash outlay 16, Castillo,1969, p. 139]. In a similar ein,Mellor 88, 1967]

suggests hat "It is ironic hatthe peasant s ac-cusedof gnorancef which ocietys guilty,".e.,the failure f governmentsn manycountries orecognizend act uponthe opportunitiesorhighreturns o modest ocial investmento provide nenvironmentn which the peasant can be moreproductive.Brewster'sprovocativeanalysis of"traditionalocialstructuress barriers o change"placesmajoremphasis n characteristicsfvillagesocietieshatmake t difficulto create henetworkof"large-scalepecialized nits f collectivectionwhichare necessary ordevelopmentnd wide-spreaduse of ncreasinglyroductiveechnologies"[11, Brewster,967, p. 67].



380 Journal f Economic Literature

wheat hat re now giving pectacular e-sults nIndia,Pakistan,ndother ountriesis a strikingllustrationf the pportunitiesfor nternationalransfersftechnologynthe griculturalield. he major enetic e-search nd plantbreedingworkon thesedwarf arieties as carried ut as partofthe cooperative esearch rogram f theRockefelleroundation nd the Mexicangovemmentnowbeingcontinued ithworldwidemandateby the IntemationalCenter orMaize andWheat mprovementwith headquarters t ChapingooutsideMexicoCity).Th-encrediblyapid uccessin developinghigh-yieldingarietiesof

"dwarf" iceat the nternationalice Re-search Institute n the Philippineswasagainbased on a plantbreeding trategyaimedat developingtiff-strawedarietiesthatwould not lodge and whichwouldhave favorablegrain/fertilizeresponsecoefficientsven at veryhigh evelsof fer-tilizerpplication. oth herice nd wheatprogramsavebenefited rom he successof agriculturalcientistsn identifyinghegenes hatdeterminehotoperiodismince

thishas made tpossible o selectvarietiesadapted oa broadrange fenvironmentalconditions.

For bothcrops, pplicationf mprovedcultural ractices-almostlways ncludingsharplyncreased se ofchemicalertilizersandfrequentlyesticidess well-is a nec-essary ondition or ealizingheyieldpo-tentialfthenewvarieties.here s a largetechnicaliteratureealingwiththesede-velopments,ut the highlightsre wellsummarizedn a paper by Harrar andWortman38,1969] and ntheRockefellerFoundation's nnualReports, rogressntheAgriculturalciences 110,1967].Thesignificancef thesefertilizer-responsive,high-yieldingarieties s enhancedenor-mously ytheprogressn fertilizer anu-facturingechnologies,ndinminingech-nologies nd successesnmineral xplora-tion hat re oweringhecostofchemical

fertilizers. eclining real prices have con-tributed o the enormous ncrease n fertil-izer production and consumption n theyears since World War II, and furtherhighly significant ost reductions are inprospect ndwill undoubtedly ontribute othe current apid expansion f fertilizer sein the developingcountries 103, OECD,1968;117,Sahota,1968].

Two otherfeatures f this type ofyield-increasing nnovationhave been stressedbecause of their economic significance.First s the fact thatbeing highlydivisibleand neutral o scale, theycan be readily n-corporated nto existing ystems f small-

scale agriculturesee, for example:96, Oh-kawa, 1964 and 88, Mellor, 1967]. Thehigh-yieldingarieties f rice, however, e-quire controlled rrigation r exceptionallywell distributed ainfall o that nvestmentin water controlfacilities s often neces-saryconditionforrealizingtheiryield po-tential 45,Hsieh and Ruttan, 967].

The second and closelyrelatedfeature fthese nnovations s thatthistypeof inten-sification of agricultural production can

makea notable contributiono theproblemof absorbing rapidlygrowing abor forceinto productive mployment98a, Ohkawaand Johnston,969 and 88, Mellor,19671].Growing ecognition ftheimpactofrapidpopulationgrowth n the size of the farmlabor forcehas been an importantonsider-ation underlying he emphasison promot-ing a labor-intensivexpansionpathfor g-ricultural roduction.Although hecontrastin growthpaths in Japan and the U.S. asanalyzed by Hayami and Ruttan 41, 1970]is striking,he rateofgrowth fJapan's op-ulation and labor forcewas moderate.Al-thoughthe farm abor force n Japan didnot begin to declineuntil the 1950s, t didnot experiencethe growth hat is such animportant eatureof developing countriestoday. n an influentialrticlepublished n1959,which reviews the historical xperi-ence in a numberof countrieswithrespect




to changesn total-farm,nd nonfarma-borforce-Dovringmphasizeshatmost fthe contemporarynderdevelopedoun-trieswillexperiencearge ncreasesn the

sizeoftheirabor orces efore he bsolutenumbersngagedn agricultureillbeginto decline 22,Dovring, 959].When thefarmaborforcenitially eighs ery eav-ily nthetotal aborforce nd thetotal a-borforces increasingapidly,onfarmm-ploymentwould have to increaseat animpossibly ighrate to absorbfully heannual dditionso thetotal abor orce.

As a consequencef therather ighde-greeof capital ntensityharacteristicf

muchofthe nvestmentn industryn theunderdeveloped ountries, lle rate ofgrowthfnonfarmmploymentppears obe very loweven n countries here herateof capital ormationn ndustrys veryrapid[134, Turnhamnd Jaeger, 969;4,Baer and Herve,1966;52,Johnston,966and 1969).Judgingytheexperiencefanumber fdevelopingountries, rate ofincreasefnonfarmmploymentf4.5per-centper yearmustbe regarded s veryrapid.But if thefarmaborforcenitiallyaccountsor 0 percentf he otal,ndthelabor force s growingt 3 percent nnu-ally,thefarmaborforcewould ncreasethreefoldnd would till ccount or early60 percent f the totalat the end of 50yearsnspite fgrowthfnonfarmmploy-ment ta rateof4.5percent. ence,meas-urestobring bouta reductionftherateof population rowth ave an important

bearing nproblemsfagriculturalevel-opment nd economic rowth ecauseoftheir mploymentmplicationss well asthemore bvious ffectfrapidpopulationgrowthnthedemand or ood 20,Chris-tiansen,966].

The rapidrates fgrowthfa country'slaborforce hatare concomitanto rapidpopulation rowth avebeenreceivingn-creasing ttention. he OECD Develop-mentCentre as initiated major esearch

project o promote tudyof the employ-mentmplicationsf the populationxplo-sion; the review f theemploymentrob-lem in developing ountriesy Turnham

and Jaeger itedabove is one of severalstudiestemmingrom hat roject hat realready vailable.There seems n facttohavebeen a shiftn thefocus f discussionof problemsf unemploymentnd under-employmenturinghepastfewyears.Atthe sametime hat herehas been a reac-tion gainst heearlier iewswith espectto theexistencefredundantabor nagri-culture,herehas been a considerablen-crease n attentiono problems f unem-

ploymentnd underemploymentn urbanareas. A 1968 articleby Lefeber [72.],for xample, utsforth sophisticatedr-gument orwage subsidies s a meansofacceleratingherateofgrowthf employ-mentn a "surplusabor conomy." greatdeal of attention as also been giventoproblemsfurbanunemploymentn partsof tropicalAfricawhere the so-called"<schooleaverproblem" as attractedheattentionf politicianss wellas research-

ers[see,for xample, 4, Callaway, 962].Althoughthese areas are not usuallythoughtf as "surplus abor economies,"there s increasingwareness hatabun-danceof agriculturaland s not s univer-sal as was supposed.t has alsobeensug-gestedby Helleiner 42, 1966] that as aresultof population rowth ormerlandsurplus"conomies re tendingo become'labor urplus"conomies,artlyecause f

tribal estrictionshatimit ccessto avail-

able and.Ofgreatermportance,odoubt,is thefact hat heexcess upply ituationinurban abormarketss related o exces-sive ncome ifferentialsetween he ruralpopulationnd workersnthemodernec-tor. n many ountries,speciallynAfrica,earningsfmodernector orkersreoftenthree r four imes s much s the veragesmall farmer'sncome nd are associatedwith herationingfa limited umber f




jobs in the modern sector. [134, Turnhamand Jaeger,1969, pp. 36-38 and 131, To-daro, 1969,p. 144]. Althoughittle esearchhas been done on this phenomenon, helarge differentialsre commonly ttributedto tradeunion pressures, overnmentym-pathyfor the trade union cause, minimumwage legislation, politically determinedwages of government orkerswhichexertstrong nfluenceon wages in the privatesector, nd the sensitivityflarge firms,s-pecially expatriatefirms,o accusationsofpaying substandard"wages.

Particularly elevant n the presentcon-text s the factthat n this situation sub-

stantialpartof the "residual" aborforce sto be found,not in agriculture, ut in theranks of urban unemployed and urbanworkers kingout an existence s casual la-borers,petty raders, r in similarpursuits.Todaro has presented n interestingmodelwhich seeks to explain urban unemploy-ment nd underemploymentn the basis ofthe combined ffectf two factors-themag-nitudeofurban-rural age differentialsndthe probability hat a migrant o theurban

labor pool will succeed in finding job inthe modern ector 131,Todaro, 1969].Oneimplication f themodel s thatmeasures oraise farm ncomesand to increase the at-tractivenessf rural iving re an importantmeans of reducing the flow of rural mi-grantsto congestedurban slums,withat-tendantsocial and political problems.An-other mplications thatwage subsidiesforworkersn themodern ector mightnfactexacerbate heproblem furbanunemploy-

ment" 131,Todaro, 1969, p. 147n; see also40, Harris and Todaro, 1968]. Researchbe-ing carried out in Kenya by Todaro, JohnHarris,and Henry Rempel at the InstituteforDevelopmentStudies n Nairobishouldprovidesome badly needed empiricalevi-dence on thevalidity f Todaro'smodelandotherdimensions ftheproblem.

Interestinglynough, he site of themostimportantonference eld to date focusing

on the interrelated roblems f"education,employment,nd rural development"wasnot nAsia butin East Africa. he proceed-ings volume of the so-calledKerichoCon-ference held in Kenya in 1966, containsanumber f valuable papers, ncluding use-ful summary hapter by Guy Hunter,ananalysis of "Projected Changes in Urbanand RuralPopulation nKenyaand the m-plications for Development Policy" byEtherington, discussion of "The Genera-tion of Employmentn Newly DevelopingCountries" y Harbison, nd a verypercep-tiveanalysis f "FarmerTraining s a Strat-egy of Rural Development"by JonMoris

[123, Sheffield, 967]. F. X. Sutton, n achapterdealingwithforeign id in relationto problemsof employmentn ruraldevel-opment, dentifies he tendencyof foreigndonors oprefer argeandwell-definedroj-ects rather handiffused nes or a numberof smallprojects s a factorwhichpreventscapital assistancefromhavingas greatanimpact in enlargingemployment pportu-nities as would be possiblewith more flexi-ble aid programs.He also believes the ef-

fect of foreign ssistance on education tohave been substantialand finds t highlysignificant n overcoming shortages ofskilledmanpowerthat have tendedto biasplanners toward capital-intensive evelop-ment projects [127, Sutton, 1967, pp.474-79].

In thesame volumeR. II. Greenpresentsa provocative analysis of "Wage Levels,Employment,Productivity nd Consump-tion."Especially pertinents hisobservation

that "Sustainable levels of public servicesdepend very heavily on wage and salarylevels because these constitute he bulk ofcosts while revenues tend to be relativelyinelastic" [36, Green, 1967, p. 216]. If acountry's trategy oragricultural evelop-ment s to emphasizemeasuresto increasefactor productivity, he strengthening fsupportingnstitutionsuch as thosefor g-riculturalresearch,extension, nd farmer




training s of critical mportance.The costof suchprogramswill,however,be undulyburdensome f t-he ncomedifferentialse-tweengovernment mployees nd the ruralpopulation are excessive. Greennotes thatin addition o the argedifferentialetweenincomes in the modern and rural sectors,there re also unduly argedifferentialse-tween salaries and wages: in East Africamembers f a small and relativelywell-paidsalaried group are "receiving an ever in-creasing hare (already over40 percent) oftotalwage-salarypayments. . ." He con-cludes that "Unless salary scales for newentrants re lowered and incremental ates

reduced, East Africawill be unable to af-fordthe increase in high-levelmanpoweremploymentonsistentwithrapid develop-ment"and that a generalsituation f largeand widening income differentialscouldalso give rise to exceedingly angerous en-sions between a small, relativelywell-offwage labour force nd thebulk of the popu-lation" 36, Green,1967,pp. 219,228]. ReneDumont'svigorous ritiqueofdevelopmentpolicies in tropicalAfrica n his L'afrique

noire est mal partie also emphasizes thistheme[24, Dumont, 1962; 25, Englishedi-tion, 966].6

A final spect of theinterdependence e-tween agriculture nd non-agriculturehathas receivedmuch attention oncerns theintersectoral lows of capital and otherre-sources between agriculture nd the non-agricultural ectors.Ohkawa [96, 1964] hasarguedthat t is misleading o speak ofag-riculture's contributions" o development(since it s moreappropriate o consider heinterdependence etween sectors), but heaccepts the termas applicable to the netflowof resourcesto the more rapidlyex-panding sectors.And Ohkawa and manyothershave stressed he importance f the

agricultural ector'scontributionn Japanto financing nvestment n infrastructureand industry nd in providing undsfor heexpansion of education and othergovern-mental ervices 100,OhkawaandRosovsky,1960; 106,Ranis, 1959; 126,Smith, 959;50and 51, Johnston,951 and 1962). In moregeneral erms, uznets 67,1961,p. 115]hasemphasizedthat "One of the crucial prob-lemsof modern conomicgrowths how toextractfrom the product of agriculturesurplus forthe financing f capital forma-tionnecessary or ndustrial rowthwithoutat the same timeblighting he growthofagriculture,nderconditionswhere no easy

quid pro quo forsurplus s available in thecountry."Althoughthe land tax has re-ceived particular attention as a transfermechanism ecause of its mportancenJa-pan, S. R. Lewis [74, 1967,p. 460] pointsout that axation s onlyone of threemecha-nismsby which the agricultural ectorcanprovide investment esourcesforthe non-agricultural ectors: "(1) private ndividu-als in agriculture an invest n the nonagri-cultural ector; 2) the governmentan tax

theagriculturalector oprovide nfrastruc-turefor henonagriculturalectors; 3) thelevel of real income can be raised to pro-vide more profitsn the high-saving ectorof the economyby terms f trade morefa-vorabletoindustry."

The usual viewthatthere houldbe a netflowof capital from griculture o industryin theearlier tages of development as re-centlybeen challenged. Ruttan and Ishi-kawa inparticular aveargued 114,Ruttan,1966 and 47, Ishikawa,1967] that becauseoftherapid growth fdemandforfoodre-sultingfromhigh rates of population in-crease, t is likelythatthe agricultural ec-tor mayrequirea net flowof capital fromthe industrial ector.The extent owhich tis feasibleand desirablefordevelopmentobe characterized y a netflowof resourcesfrom the agriculturalto the nonagricul-tural sectorswill,ofcourse,dependon par-

6This is only one of a number f themes re-sented n thishighly nevenbut challengingndinfluentialookby Dumont. See also the reviewarticle y JohnHarris 39, 19681.



384 Journalf Economic iterature

ticular ircumstances.o the extenthat tis possible o achieve ncreases n agricul-tural utput y raising actor roductivity,the capitaland foreign xchange equire-mentswithin griculturere reduced ndthe feasibilityf such resourceransferssincreased. . H. Lee's study f ntersectoralcapitalflows nTaiwan stresseshe mpor-tance f an efficientpproach o ncreasingagricultural roductivitynd output inmaking ossible henettransferrom gri-culture to nonagriculturehat occurredthroughoutheperiod 1895 to 1960) thathe examined. ee's study s importantoritsconceptual rameworkor nalyzingec-

toral nterrelationshipsetween gricultureandnonagricultures well s for he mpiri-calevidence nTaiwan's xperience70 and71,Lee, 1968 nd 1970].

In situationshere here re excessiven-comedifferentialsetween herural opu-lation nd wageeamers n themodern ec-tor,however,here s a presumptionhatresourcesre beingtransferredrom gri-cultureo thebenefitf salariedpersonneland wage earnerswithresults hat seem

difficulto justifyn termsf equity rtheattainmentf developmentbjectives. sStephen ewis has observed,n countrieswhereindustrialwage levels have risenveryhighrelative o agriculturalncomes"consciousffortso transferncome othehigh-savingectormay esultn argewind-falls o those aborers hocan findmploy-mentthigh rbanwage evels, atherhanin greatlyncreased avings" 74, S. R.Lewis, 967, . 462n].

III. CriticismfGrowthtageModels

A number of the models consideredabovecan be described s "growthtage"or "Phase"models. ewis'two-sectorodelrelates oa transitionalhase;when apital"<catchesp"withabor upplyhe wo ec-tormodel s no longer elevant.His 1966treatisen developmentlanninguggestsfive tagesof developmentelated o the

changingrole of foreign rade, lthoughhestresses hat these are not historical tagesbut "merely way ofdistinguishinghesit-uations in which an economy mayfind t-self" 77,W. A. Lewis, 1966,p. 38].) Perkinsand Witt, Johnston nd Mellor, and Hilland Mosher have all made use of a se-quence of three phases in theirrespectiveattempts o analyze the process of agricul-tural development in the course of eco-nomic growth 105, Perkins nd Witt,1961;54, Johnstonnd Mellor, 1961; 44,Hill andMosher, 1962]. Wharton, n a synthesis fthose approaches,has suggestedten char-acteristicshat undergomajor changeas an

agricultural conomymoves fromStage I(Static) through tate II (Transitional) toStage III (Dynamic) [137,Wharton, 963].

Ruttan has criticized hose growth tagetheories longwiththe well-knownheoriesof List, Fisher and Clark, and Rostow.List's five-stage lassificationeems archaictoday,but otherelements n his analysishave a contemporarying.As Ruttanpointsout, "He regardeddomestic ndustrialde-velopment s the most mportant enerator

ofagricultural rogress ecause ofthedou-ble impactresulting rom a) the ncreaseddemand forfarmproducts rom n expand-ing nonfarm ector and (b) the develop-ment of moreefficient ethods ofproduc-tion resulting romthe applicationof sci-ence and technology"115,Ruttan, 968,p.4]. In Rostow's five stages of economicgrowth,griculture as an importantoletoplay; infact, griculture r another rimaryindustrymay act as a leading sector n thetransition roma traditional o a moderneconomy 112,Rostow,1960].JohnstonndMellor'sdelineation f threephases is influ-enced by Rostow's stages in concept andterminology,ut theyare more specific oagriculture nd are in essence a typologyrelatedparticularlyo the degree of struc-tural transformationhat has taken place[86, Mellor, 1962, p. 711]. Phase II, whichfollows period n whichthe preconditions




whichmake hange ossible refulfilled,scharacterizedy expansionf agriculturaloutputbased on labor-intensive,apital-saving echniques,ogetherith henorma-tivepropositionhat herehould e heavyreliance ntechnologicalnnovations.heirPhase III, in whichexpansion f agricul-turaloutput s based on capital-intensive,labor-savingechniques,s related oa situa-tion nwhich gricultureo onger ulks olarge n theeconomyndthe opportunitycost f aborhas risenubstantially.

Ruttan riticizes rowth tage theories,and dualeconomy odels swell, rimarilybecause they are lackingin analytical

power.He rightlymphasizesheneed forgrowth odelswith reater perationalel-evancefordevelopmentolicy.n his viewsuchmodelswill have "toprovide orfor-mal interactionetween the agriculturaland nonagriculturalectors hrough gri-cultural roductsmarkets,he marketsorthe manufacturednputsused in agricul-turalproduction,abor markets, he landmarkets, apital markets, nd consumergoodsmarkets." oreover,he need is for

an analytical rameworkor empirical e-search imed t obtainingstimatesf thevaluestobe assigned o the variables ndparameters pplicable to specific cono-mies, nd thus o provide basisforpro-jectingthe quantitative ffects f themanipulation f alternativenstitutionalvariables115,Ruttan, 968, p. 19-20].

Effortso elaboratemoresophisticatedmodels avenotyet dded much othe n-sights erived rom oodhistoricaltudiesandheuristic odels uch s Lewis' classictreatmentr thehighly implifiednalysisofinterdependencey Johnstonnd Niel-sen [55,1966]whichgnoresheeffectsfchangesnprice evels nd nproductivity.Tolley has deriveda model thatallows forthe changes in labor productivityn agri-culture and nonagricultureand whichshows how the annual percentage changein theproportion f thepopulation n agri-

culture actually food production")willdepend n (1) the nitialhare fthe aborforceneachsector,2) the ncome lastic-ity of demandforfood and forall othergoods, nd (3) therates f ncreasenpro-ductivityn each sector 56,JohnstonndTolley, 965, p. 372-75]. n an earlier a-perwhich ocuses n theU.S., Tolley ndSmidtpresent more complicatedmodelthat takes account f changes n relativeprices, he determinationfmarginal ro-ductivitiesf abor ndcapital ya produc-tion function,he influence f purchasedinputs, nd the contributionsf transfer-ring ow productivityabor n agricultureo

non-agriculturalmploymentith highermarginalproductivity132, Tolley andSmidt, 964]. n a highlyimplifiedut n-terestingnalysis,Mellorgivesan indica-tion of how the agricultural rice levelwould changewith differentates of in-crease n output nd with alternatives-sumptionsoncerningherateof increasein demand 88,Mellor, 967, p. 28-32].

A numberf othermodels re very ug-gestive lthoughhey ertainlyo notfulfill

the exactingrequirementstipulated yRuttan. n particular,mention houldbemadeofmodels eveloped y Ohkawa 95,1961], Krueger 65, 1962], shikawa 47,1967], nd Gutman with a mathematicalappendixby Black) [37, 1957].Mentionshould lso be madeofa rathernterestingsketchof a five-sector odel (domesticfood, cash exportcrops,nonagriculturalprivate, overnment,est fworld)by Tol-leyandGwyer,ut t sonly sed as anex-pository evice [133, Tolley and Gwyer,1967, p. 412-15].Perhaps hemost labo-ratemodelfor he analysis f ntersectoralrelationshipsn a developing conomy sonepresentedyThorbeckendField 130,1969].This model s especially nterestingbecauseofthedissaggregationnto gricul-ture,manufacturing,ervices,nd foreigntrade ectors.Moreover,hecoefficientsfthe model are estimated n the basis of




data forArgentina nd Peru, and an inter-esting ttempts made to considerhow cer-tain strategies re suggestedby themodel.This model is certainly promising ndsuggestive pproach,but inhis comment nthe paper, C. W. Reynolds questionswhether he modelhas been developed to apointwhere t adds verymuchtothe sourcematerial n sectoraldevelopmentnthetwoeconomies 108, Reynolds, 969].

IV. Agriculture-IndustrynteractionsndFutureResearchNeeds

Certain distinctive features of theproblems facing the developing countries

underscore he mportance f research ead-ing to deeperunderstanding f theinterac-tions between agricultural nd industrialdevelopment. he prospect hatunemploy-ment and underemployment ill becomeincreasinglyerious during henext two orthree decades (as a resultof the combina-tion ofa rapidlygrowing abor force nd apervasive bias toward a capital-intensivepattern finvestment)s one ofthecriticalproblemsthat needs to be illuminatedby

betterunderstanding f agriculture-indus-try nteractions nderthe unique conditionsconfrontinghe contemporary evelopingcountries.

This is an area ofresearch hat s on thefrontier f economics n a twofold ense. Anumber fthe mportant uestionshave notyet been conceptualized satisfactorily,much less answered.* nd it is an area inwhichthe really nterestingnd importantproblems xtendbeyondthe boundaries ofeconomics s conventionallyefined.

Attentionwill be given first o T. W.Schultz's industrial-impactypothesis ndsome criticalcomments n thathypothesisby G. E. Schuh that suggestthat it is ofsomewhat imitedvalue in illuminatinghemajor problemsthat confront country tan early stage of development.This is fol-lowed by a briefreviewof Paul Bairoch'svery differentnalysis of interactions e-

tween agriculture nd industry. he inter-relationships etween choice of strategy oragriculturend the growth f opportunitiesfor productive employment,which werenoted briefly n Section II, are then exam-ined in somewhatmoredetail.To providetheoretical ramework or examining omeof the indirectrelationships etween agri-cultural and industrialdevelopment, on-sideration s given to HarryJohnson's iewof theprocessof economicdevelopment sa generalized process of capital accumula-tion (broadly conceived) and to NathanRosenberg's elatedpropositionsoncerningthe importance f feedback effects ssoci-

ated with differentatterns f resourceuseon future rowth.After onsideringome ofthe interactionsbetween agriculturalex-pansion and developmentof the capabili-ties of an indigenousmanufacturingector,a fewfinalobservations re made concern-ing the natureof future esearchneeds.

Someofthebestempirical esearch elat-ing to the interactions etween agriculturaland industrialdevelopmenthas been di-rected at testing the validity of Schultz's

"industrial-urban ypothesis" which em-phasizes the spatial aspect of the relation-ships between particular industrial-urbancenters and the surrounding griculturalcommunity119, Schultz,1953].W. H. Nic-holls' recentresearchon Brazil has appliedan analyticalframeworkhatderives fromtheSchultzhypothesisndwhichwas elab-oratedby Nichollsand A. M. Tang in theirstudies to test thehypothesisn the south-easternU.S. [92 and 93, Nicholls,1961 and1969; 128, Tang, 1958].

G. E. Schuh's critiqueof Nicholls' paperon "The TransformationfAgriculturen aSemi-Industrialized ountry:The Case ofBrazil" contains an excellentsummary fSchultz'shypothesisnd ofthevarious eststhathave been applied to itbyRuttan 113,1955], Bachmura [3, 1956], Sisler [125,1959], Sinclair 124, 1957],and Bryant 12,1966], in addition to the workby Nicholls




and Tang [118, Schuch, 1969]. The indus-trial hypothesis s advanced by Schultz isrelated to his concernwith the persistenceof substantial egionaldisparities n the rate

and level of development n American gri-culture. The hypothesis is convenientlysummarized n threepropositions: 1) eco-nomic growth ccurs n a specific ocationalmatrix; 2) the centersof growth re pri-marily ndustrial-urbann composition; nd(3) economicorganizationworksbest at ornearthecenter fa particularmatrix f de-velopmentand also works better n thosepartsof agriculture ituatedfavorably n re-lationto such a center 115, Ruttan, 96,8, .

5; 118, Schuch,1969,p. 381].The earlier studies relating o regions n

the eastern United States tend to confirmthe hypothesis, ut subsequent studies bySislerand Bryant,whichextended heanal-ysis to include the entire country, oundthat the hypothesiswas not borne out bythe data fromwest of the Mississippi.Par-ticularly elevant n the present context sthefactthat Schultzwas analyzing gricul-tural problemsof a highlydynamic,grow-ing economy, albeit one characterizedbysubstantial egional ncome disparities. Hewas not concerned," s Schuh points out,"with the problem currently eceiving somuch attentionin developing countries,which s how agriculture an be made moreproductive o thatit can contribute o theindustrial evelopment f the country" 118,Schuh, 1969,p. 383]. And Schuhgoes on toquestion certainaspects of Nicholls' analy-

sis of Brazilian experiencebecause of hisdoubts about the relevance of the Schultzhypothesisn the Brazilian context.

It may also be mentionedat thispointthatthere eems tobe a notableanomaly nSchultz's own work.His Economic Organi-zationof Agriculture, ublished n 1953andmainlyfocusedon theU.S., gives majorat-tention to the interrelationshipsetweengeneral economic growthand agriculturewhereas n his treatmentfagricultural e-

velopment n the less developed countriesthese interrelationshipseceive scantatten-tion. Th-is ontrast s especially trikingn arecently published volume, Economic

Growth in Agriculture,which brings to-gether essays dealing with the U.S. andwith problemsof agricultural evelopmentin low-income ountries. is papers dealingwith agricultural roblems n the U.S. con-tain numerous references o the need "toprovide nonfarmobs forthe excesssupplyof labor in agriculture" 122, Schultz,1968,p. 130]; but the vastlymore difficultrob-lems associated with "the excess supplyoflabor in agriculture" n underdeveloped

countries eceiveno attention. nd thetreat-ment n hisTransformingraditional gri-culture s confined o refuting he extremeversionof the view that there s a surplusof labor in theagricultural ector n under-developed countries, .e., the doctrine ofagricultural abor of zero marginalvalue[121, Schultz,1964,Chapter4].

Schultz has also gone rather ar n deem-phasizing industrialization s an essentialelement n the economicgrowth f under-developedcountries 120, Schultz,1956and122, Schultz, 1968, pp. 191-218). Schuh'spaper referredo above makes a highly n-teresting bservation hatmay throw ighton this apparent asymmetryn Schultz'streatment f agriculturen high-and low-income countries.He notesthatthe frameof reference or Schultz's ndustrialmpacthypothesisis such tlhatausality lows romindustrialization,s a process exogenousto

agriculture"118,Schuh,1969,p. 383]. Thatis, he was considering he problemsof amature conomynwhichtheexistence fadynamic industrial ector could be takenforgranted.But in Brazil,and stillmore nunderdevelopedcountrieswhere consider-ably less structural transformation astakenplace, the criticalproblem s to ini-tiate and nurture processof industrializa-tion. t is truethatS-aoPaulo, thefocusofattention orNicholls'Brazilianstudy,now




has a dynamic,apidly rowingndustrialsector 93, Nicholls, 969]. AccordingoSchuh,however, Agricultureontributedheavilyo thedevelopmentfthe ndustrial

complexfSao Paulo.Notonly id thegov-ernmentransferubstantialapitalfromagricultureo industry hroughn inge-nioususe ofmultiple xchange ates ndoutrightonfiscationf exchange arnings,butagriculturalntrepreneurslso nvestedrather eavilyn the ndustrialector"118,Schuh, 969,p. 384]. This s, ofcourse,nsharp ontrasto theframe f referencefNicholls' estof theindustrialmpacthy-pothesisn theTennessee alleywhere ag-

riculturet thebeginningf thestudy e-riodwas largelytagnant,nd a process findustrializationas imposed romheout-side largely s an exogenoushock n thesystem"118, chuh, 969, .383]. The rele-vanceoftheforegoinguestionss height-ened by the fact that,as Ishikawahaspointed ut,theanalytical rameworkn-derlyinghe Regional conomic eport nAgriculture"ecentlypublishedby theAsian DevelopmentBank in the Asian

Agriculturalurvey s very imilar o thatutilized y Schultzn Transformingradi-tionalAgriculture2,ADB, 1969;48, Ishi-kawa, 969].Thusthbisery mportanttate-ment s characterizedy similar trengthsandshortcomings.

Paul Bairoch'study f the nterrelation-shipsbetween griculturalnd industrialdevelopmentn Englandand Franceandtherelevance fthat xperienceocontem-

porary nderdevelopedountriesffersn

interestingontrastotheviewpoint epre-sentedby Schultz'sndustrialmpacthy-pothesis.His historicalreatmentmpha-sizesthat ausality lowed romgricultureto industry,nda gooddealofevidencesmarshalledo supportheview that n in-crease in agricultural roductivityndgrowthn demandforagriculturalnputssupplied y ndustryeremajor orceshatgaveimpetuso theprocess f cumulative

economicgrowthn those two countries.One ofthemajor onclusionsfhis tudysthat ffortso fosterndustrialevelopmentin thecontemporarynderdevelopedcon-

omiesmust seek o create avorablenter-actions etweenndustrynd agriculture"[5,Bairoch, 964, . 210].

Bairoch lso examines number ffac-tors hatweaken heoperation fthe "dif-fusionmechanisms"hatwerehistoricallyso importantn translatingn initial m-pulse,notably heincrease n agriculturalproductivity,nto a process f cumulativeeconomic rowthn the countriesf theWestandJapan. n addition o theprob-

lems ssociated ith apidgrowthfpopu-lationntoday's nderdevelopedountries,he callsattentiono a numberf unfavor-ablefactors hichweaken heoperation fthe diffusion echanismshatwere mpor-tant n the nineteenthenturyndwhichsuggesthat here s particulareedtodayto pursue policiesthat will intensifyhepositive, growth-promotingnteractionsbetween griculturalnd industrialevel-opment.The unfavorable actors hat he

emphasizes5,1964, p.73-741 re:(1) Increase n disparityetween radi-

tional nd modern echnologies he rela-tively arrow ap n thenineteenthenturybetween henewtechnologiesndthe killsofblacksmiths,inkerers,atchmakers,ndother raditionalrtisansmeant hat ocalproductionould be initiatedn the basisof mitatingfewprototypesith erhapsa modestmountfprivatetechnicalssis-

tance." he importancef thisfactors at-tested ytherelativelylightmportancefmachinery mportsby late-developingcountriesfwesternurope, nd evenJa-pan. Today'smore sophisticatedechnol-ogies,heavilybased on modern cience,also implymuchhigher ducational e-quirements.

(2) The ncreasenthe mountf nves.t-mentperworkerssociatedwithpresent-day technologieshe averagecapital n-




vestment erworker equiredn theearlynineteenthentury as equivalent o fourmonths' ages n the U.K. and sixtoeightmonths'wages in France. n theU.S., in

1953, the investment er worker epre-sented 9 months' ages, nd in a contem-porary nderdevelopedountryhe nvest-ment equirementer workers equivalentto some 50months' ages.

(3) Predominance f large-scale, en-tralized actories he small-scale nd de-centralizedocations f industrialactoriesin thenineteenthentury eremuchmorefavorable o the "diffusion echanisms"thatwere riticaln aunching cumulative

process feconomic rowth.(4) Greater ifficultyn therecruitment

and trainingf echnical orkersndentre-preneurs ecruitmentnd trainingf tech-nical workersndentrepreneursor n ex-pandingndustrialector ere acilitatedythemodestechnologicalap to be bridgedand by thewidespread istributionfin-dustrywhich meant thatrecruitmentftechniciansnd entrepreneursor he new

tasksof an industrialociety ould drawfrom very road ase.(5) Reducednatural rotectionhe re-

ductionn costsof transportationnd theprotectionhatthosecostsafforded,othinternallynd internationally,as greatlyincreased hedifficultyf establishingewindustries ithinn underdevelopedoun-try nd in variousregionswithin uchacountry.

(6) Biastow-ardeliance nagricultural

exports hereductionncosts ftransporthas also contributedo whatBairochre-gards s an "excessive"evelopmentfag-riculturalxports hich astended ohaveadverse ffectn the diffusionrocess, s-peciallywhenexport roduction as con-centrated n foreign-ownedlantations:(a) profits ere often xportednstead fbeingreinvestedn theexpansionf localindustries,b) expatriate irms ependeduponforeignources fsupply or gricul-

tural quipment,c) therewas a minimumfavorablempact n local subsistencegri-culture ecauseplantationechniques ereoften otsusceptibleo beinggeneralized

withinhe ocal agriculturalconomy,ndfrequentlyncreased emand orfoodwasmet y mports,nd d) therewas weak n-centive orcreation f local industriesorprocessing gricultural aw materials rminerals.7

(7) Excessive ncome differentialse-tweenthe traditionalnd modern ectorsSocial welfare egislation nd concepts,early evelopmentf trade nions, nd the"conscience"f foreign irms ave resulted

in excessive ifferentialsetweenwages nthe modem ector ndthe general evelofproductivityn the low-income conomy.Reducedprofitsurtailhe bility f ndus-trialfirms o finance xpansion ut ofre-tained profits,nd artificiallyigh wagesencouragen inappropriateegree f capi-tal ntensity.

Althoughhefactorsmphasized yBair-och are extremelyuggestive,heir mpor-

tancehas not been tested mpiricallyndthey reessentiallyd hoc propositionsn-related to a theoretical ramework.hegeneralcapital-theoreticpproachto theanalysis f economic rowth utlined yHarryJohnson s a basis for a dynamictheory f internationalconomic elationsoffersnsightshat re extremelyertinentto ourunderstandingf agriculture-indus-try nteractions.n this pproach ifferencesin the endowmentatios f capital to la-

bor are the fundamental ifferentiatingcharacteristichat determines atterns fproductionndtrade, rovided hat capi-tal" is conceived f in a broad senseand"labor" n a narrow ense. n this broadconception f capital, Johnson ncludesnot only physical apital equipment ut

'The problemsthat characterize griculturaleconomiesdominated y plantations peratedbymulti-nationalorporations ave been examinedin somewhat reater etailby Beckford9, 1969].



390 Journal f Economic Literature

also natural resources, social capital, hu-man skills,and the technicaland organi-zationalknowledge ccording o whichthehuman and material factors f productionare combined in the productionprocess.Labor, on the otherhand, s conceivedof nthe narrow ense of the availability f hu-man time [49, Johnson, 969, pp. 9, 15].Within hisconceptualframework,e char-acterizes he processof economicgrowth

as a generalizedrocess f capital ccumu-lation,hats,of nvestmentnthe cquisitionof argertocksfthevarious ormsfcapi-tal; andthe conditionfbeing developed"consists fhaving ccumulated, ndhavingestablishedfficientocial nd conomic ech-anisms ormaintainingnd increasingargestocksf apital erhead nthe ariousorms.Similarly,he conditionfbeing under-de-veloped"s characterizedythepossessionfrelativelymall tocks f thevarious inds fcapital, nd theexistencefrelativelyeakand inefficientechanismsormaintainingand increasinghose tocks, articularlyfinefficientechanismsor coordinatinghegrowthfthevarious ormsf capital o astokeep he ates freturnn themoughlynalignment,ndhigh nough oencouragec-cumulation49, Johnson,969,p. 91.

That "the mechanismsfor coordinating

the growth f the variousforms f capital"-are generally nefficients not surprising.There are both nherent roblems nd spe-cial shortcomings ithin developingcoun-tries hat make it difficulto coordinate hegrowthof physicalcapital and investmentin knowledgeproduction nd in the crea-tion of human capital "so as to keep theratesof return n them n alignment, ndhigh enough to encourage accumulation."Although competitivemarket ystem an

be a valuable mechanism orguidingmanyallocation and investmentdecisions, "im-provement f the degree of integration fthe [market]system nd of the quality ofthe informationt generatesand dissemi-nates is itselfpart of the process of eco-nomicdevelopment" 49, Johnson, 969, p.9].

Recent essays on agriculturalmarketingin developing ountries y W. 0. Jones nd

Vernon Ruttan stress spects of marketingpolicythat are highly ertinent o thisviewof the development rocess.ThusJones 59,1970] emphasizes that n choosing policieswithrespect o agriculturalmarketing,on-sideration hould be given to the ways inwhich differentypesof marketing rrange-ments oster r impede the processofevolv-ing the increasingly omplex network ofeconomic exchange that s an essentialfea-tureof a modern,market-orientedconomy.In an analysis of agricultural roduct andfactor markets n Southeast Asia, Ruttan[116, 1969] concludes thattraditional rod-uct markets perform easonably well but

thatmarkets orfarm nputs re poorlyde-veloped and inefficient.8is tentative x-planation of this dichotomy n marketper-formance s thatexisting istribution han-nels are effective or transmittingrice in-formation ut ineffective or transmittingthe more complex technical knowledgeconcerning he characteristics nd use ofnew inputs.The learningrequirements oreffective istribution f almost totallynewitems uch as chemicalfertilizersnd insec-

ticides are certainly considerable. Diffl-culties are compounded because initiallydemand will oftenbe limited, nd thesea-sonality f demandcomplicates heproblemof ensuring hat supplies are available ontimeand in the right lace.

Beyond the problemsof achievingeffic-ient market mechanisms,however, "theprocess of growthwill be strongly ondi-tionedbythe nature nd qualityof politicaldecisions n therelevant reas,and also bytheextent o whichtheworkings f marketdecision processesfall shortof optimality"because of such problemsas externalities[49, Johnson, 969,pp. 9-10]. In addition othe familiarconsiderationswhich accountforthe fact that nvestment ecisionswith

8 In addition to the literature n agriculturalmarketingeviewed yRuttan, eferencehouldbemade to recenttudies y Lele [73, 1968]and Jones[53, 1969].



Johnston: Survey of Research 391

respect opublic utilities nd other ypes finfrastructurere either takenby govern-mentor stronglynfluenced y governmentpolicy, investmentsn knowledgeproduc-

tion and in the creation of human capitalalso depend heavily n governmentecision-makingprocesses.And because of the spe-cial features fthe atter ypes f nvestment,the likelihood funderinvestmentnd mis-allocationof resources orthese purposes sconsiderable.

Viewing growth s a process of capitalaccumulationn thisbroadersense also un-derscoresthe importanceof two proposi-tions thatNathan Rosenberghas stressed.

Althoughhe does not minimize he impor-tance of theproblemofmaximizing utputfrom fixed tock of resources,Rosenbergstresses hatto understand he problemofgrowthof output over time "we are com-pelled to considernew problemsof a sortwhich are not illuminatedby staticanaly-sis" [111, Rosenberg,1964,p. 61]. He em-phasizes that since economic growth s inmany respectsa learningprocess in whichthe human factor cquires new skills, pti-tudes, and aspirations, t is important oconsider he effectsf a number f feedbackmechanisms n theproductivityf thehu-man agent.He suggests hat theremaybeimportantdifferences etween agricultureand manufacturing, r between differenttypesof manufacturingr agricultural c-tivity,n thekinds of qualitative hanges nthe human agent that are generatedandthereforen the mpactofdifferentatterns

of resource use on productivity hangesovertime.9

Also pertinento questionsrelating o ag-ricultural trategynd the processof struc-tural ransformations Rosenberg's mphasison the special importanceof the capital

goods producingsector and "its role as asource of new technology ppropriate o acountry's actor ndowment . ." [111,Ro-senberg,1964, p. 71]. He suggests hatthedegree of developmentof this sector s acriticalfactor ccountingfordifferencesnthe growth erformancef industrial con-omiesand "primary roducing ountries"nwhich little structural ransformationastakenplace:

It is probable hatone of themost mportant

factors ontributingo theviability nd flexi-bility f industrial conomiess the existenceof a well-developed apitalgoodssector os-sessing hetechnical nowledge,kills ndfa-cilities orproducingmachineryo accommo-datethechanging equirementsfproductiveactivity lus theability nd the ncentive orraisingproductivityf machinery roductionitself-therebyeducingts cost and encourag-ing its furtherdoption.Hereinmaylie themost mportanteedback f all which s centralto explaining hedifferencesn behavior e-tween ndustrialndprimaryroducing con-omies. ndustrialocieties,hrough hbeoleof

theirhighly evelopedcapital goods produc-ing industries, ave, n effect,nternalizedntheir ndustrialtructure technological a-pacitywhichundertakesechnologicalhangeand adaptation lmost s a matter f courseand routine.Under-developed conomies, fcourse, mportmuch of theircapital goodsfrom abroad, but this expedient deprivesthem f a learning xperiencen the produc-tion, improvementnd adaptation of ma-chinerywhich may be vital to economicgrowth 111, Rosenberg, 964, p. 71].

It is apparentthatforcountriesn which

little structural ransformationas takenplace, the agriculturaltrategydopted willhave a major nfluence n the "feedback f-fects" nd "diffusionmechanisms" hat de-termine whether there will be strong,growth-promoting nteractions betweenagricultural and industrial development.This suggests hat decisionswithrespecttothe design of an appropriate trategy oragriculture hould take account of factorsthattend to be ignored when "Transform-

'Similarpropositionsreemphasized y Baldwin[5a, 1963I in his analysis f the mpact n devel-opment f differentypes f export ndustries. enotes,forexample, hatexpanding roduction fagricultural xport rops has relativelywide de-mand repercussionsn bringing eople into themoney conomy, hereasmineral ndustries ave amorefavorable ffect n the developmentf aborskills, ut thismpact oesnot xtendmuch eyondthe export ndustrytself.



392 Journal fEconomic iterature

ing Traditional griculture"s viewed nisolation ather han s a partof the basicproblem f "Transformingraditionaloci-eties."

A major onclusionuggested y HarryJohnson'snalyticalrameworknd bytheprovocativedeasput forth y Bairoch ndRosenbergs that hepattern f ndigenousmanufacturingctivity ill exert power-ful nfluencen the generalizedrocess fcapital accumulation"nd the growth foutput nd employment.articularlym-portantn thepresentontexts the act hatthe trategyor gricultureillhave mpor-tant ndirectffectsnthe ability fdevel-

oping ountriesoabsorb rapidly rowinglaborforce ntoproductivemploymentswell as importantirect ffects elated othechoice ftechnique ithingriculture.

Althoughconomistsommonlytresstrade-offetween utput nd employmentobjectives,here onot ppear o be inher-ent reasons for serious conflict etweenthoseobjectiveswithin griculture.10itha broad-thrustpproach o increasingheoutputndproductivityf thegreatmajor-ity fa nation's armersy abor-intensive,capital-savingechniques, growingaborforce an be absorbedntoproductivem-ploymentn agricultureven though heunderlying an/land atio s unfavorable.In Taiwan,for xample, s a result fthecombinedffectfhigher ields, mprovedirrigationndexpandedmultiple ropping,and enlarged roductionf higher aluedcrops,t has been possible oreduce nder-

employmentnagricultureignificantlyndtoraise ncomes erfarmworkernspite fa reductionn theaveragefarm ize [71,Lee, 1970, hapter ].

The tremendouslymportant ield-in-creasing nnovationsepresentedy thenew varietiesf wheat, ice, ndmaize c-companiedy heavier pplicationf fertil-

izer are, as notedearlier, eutral o scaleand thereforenhancethe prospects orachievingncreasesn farm utput ya la-bor-using,apital-savingxpansionpath.The substantialubstitutabilityffactorsnagriculturalroductionndthepotentialorincreasingactorroductivityre,however,dependentpon hebroad trategydoptedfor ector-widerograms.overnmentol-icies and programs ffectingactor ndproductrices ndthequantityndquality

of resourcesdevoted to agriculturale-search nd extension illbe of major m-portance.Research, xtension,nd creditarrangementseared otheneedsofsmall-scale farmers ith imited apacity o em-ploypurchasednputs reparticularlym-portant xamplesof programs hatwillaffecthefactor roportionshat haracter-ize the griculturalector'sxpansionath."

It is sometimesrguedthat here s noneed to be concerned iththe effectsf

10The conflict ay,however, e serious orpar-ticular rops. t appears hat heforces hat ead tothe adoption f capital-intensiveechnologiesreespecially strongfor export-orientedugarcaneproduction ecause of technical haracteristicsfthe crop, he nfluencef tradeunions r minimumwage egislation ntheprice f abor, nd theneedtokeep export rices ompetitive.

11 n his introductiono the proceedingsolumeof the Universities/NationalureauConferencenThe RoleofAgriculturenEconomic evelopment,Thorbecke rguesthat "The macro-economicm-plications, n terms f employmentreation ndincomedistribution,f differentechniques ndcombinationsf inputs houldbe analyzedcare-fully o determine hepossibilityfconflictshatmight rise n thepursuit fstatic conomic ffici-ency,on one hand, and long-run conomic ndsocialdevelopment,n theother" 129 Thorbecke,1969, p. 6]. He also suggestshat uchanalysis aslagged by comparisonwith the notableprogress

thathas beenmade in recentyears n ourunder-standing f the interacting icroeconomicactorsthat are critical o the expansion f farm utput.The Literature f Agriculturallanning, smallbookby Gittinger34, 1966]which s considerablybroader n its coverage hanthe title mplies, s avery useful surveyof the literature n factorsaffectinghe expansion ffarm utput.Referenceshould also be made to a numberof excellentpapers by YujiroHayami and Vemon Ruttan,n-cluding heforthcomingrticle n the nfluencefrelativefactorprices on patterns f productivitygrowth n Japan and in the U.S. that was men-tionedn SectionI.




prematurenvestmentn labor-displacingtechniques n agriculture ecause ruralpublicworks rograms ffer ready olu-tion or roblemsfunemploymentnd un-

deremploymenthichmight e aggravatedby such nvestments.thers dvocate uchprogramss an additionalmeans fexpand-ingemploymentpportunitiesn rural reasandbecause ftheuseful dditionso nfra-structure hat can resultfrom publicworks rogram.n areas uch s EastPaki-stanwhere heproblemsfrural ongestionare especially cute and difficulto relieveby expansion f employmentn agricultureor in nonfarmndustries,here s a strongcasefor sing esourceso employ ural a-boron thistypeof program. ut some ofthe resources o employedmay have highopportunityost,and a long-runolutionmustdepend upon expansion f nonfarmoutput nd employment.

The FAO report n an IndicativeWorldPlanforAgriculturalevelopmentuggeststhatbecauseof themagnitudef the aborforce bsorption roblem onfrontingess

developed ountries,reallymajor publicworksprogramsn rural reas shouldbegivenveryhighpriority."he report oesontoargue hat

public worksprograms ould use resourcesthat would outherwise o to waste to helpbuild rrigation orks, oads, ommunicationssystems, chools, hospitals, tc.-in fact thewhole infrastructurehat s so basic to eco-nomic development. . . They would raisedemand foragriculturalnd nonagriculturalproductsand animate the whole economywhich often acks more than anything lse

the timulationf ustained emand 82, FAO,1969,Vol. I, p. 26].

Thisstatementas beensingled utas anexampleof a common endencyo glossover the fiscalproblems osed by largepublicworks rograms.urely his s onearea n which heres likelyobe an mpor-tant trade-off etweenemploymentndoutput bjectives.12s Ishikawa 47,1967]

has emphasized,unds t thedisposal f hecentral overnmentre often particularlyscarce esource.13

The indirect ffectsf a country'sp-

proach o agriculturalevelopmentn theprocessof structuralhange and on thegrowthfnonfarmutput nd employmentare related o the patternf ncome istri-butionand the compositionf ruralde-mand.Although heaggregate emand fruralhouseholds ornonfarm roductssconstrainedy thegrowth f farm ash n-come, he type fruraldemand or nputsand consumeroodswilldifferccordingothe typeof agriculturaltrategydopted.

Logic and historicalvidence uggest hatthe nature of this rural demandwill,throughts effectsn the eveland compo-sition f nvestmentn thenonfarmectors,influencehemagnitudef he ffectsf g-

'1This point s elaborated n a preliminaryaperon "PublicFinance and Employment reationn

Developing Countries:The Analytical ssues" byAlan Peacock and Keith Shaw which also notesthe reasons why a Keynesian-typencrease ineffective emand s unlikelyo be a feasible em-edy for mploymentroblemsn developing oun-tries 104, Peacock and Shaw, 1969].

The only reference o the financingf publicworks n theFAO report s the statementp. 26)that "The food elementn labour costsmightbepaid in kindfrom omestic roduction s soon asagriculture ecomescapableof meeting he nter-nal demand." This anachronisticuggestion re-sumably eflectshefact hatmost rogramsf thisnature aunched n recent earshave utilized ddi-tional esourcesmade available n theform f foodaid underbilateral rogramsuch as P.L. 480 orthroughheWorldFood Program.n an interestingworking aper on the effectsf food id on capitalformationndemploymentnNorthAfrica, ahn-ert and Carmignani uestionwhethert is really

necessary o rely on distributionf food in kindeven when the supplementaryesources re pro-vided as food aid [61, Kahnert nd Carmignani,1969].

13 shikawa rguesthat central overnmentro-grams houlduse governmentubsidies r oans toexert everage n mobilizingocal investmentndmanpower esources o as to maximize he "invest-ment-inducementoefficient." ith regard o thechoicebetweenmajor nd minorrrigation orks,he suggests hat mall projects ave an importantadvantage ecause farmersee a direct enefit ndit is thereforeasierto raisethe partofthefundsrequiredas a local contribution47, Ishikawa,19671.




ricultural xpansion on the growth f non-farm mploymentnd output.

Given the great importanceof agricul-ture n the economies of developing coun-

tries that have experienced ittle structuraltransformation,t is almost certain thatthese ndirect ffects ill be of considerableimportance.The propositions ut forwardby Nathan Rosenberg suggest that sig-nificant feedback effectswill be associ-ated with the sequence in which mechani-cal innovations re adopted and the typeofdemand for farmequipment that s gener-ated. The growth f thisdemand s likely oexert particularly ignificantnfluence n

the development f metalworking irmsndon thegrowth fthe capitalgoods produc-ing sector.

In one of thefew studies of this typeofinteraction etween agricultural nd indus-trial development,Falcon has noted thatrapid expansion of private tubewells inWest Pakistangave a strong timulus o thegrowth f local machine shops [28, Falcon,1967]. This experiencewas in markedcon-

trastwiththepublic tubewellprogram hatutilized larger and more sophisticatedequipment that was mainly importedsothat he inkageeffects ere slight.

Little attention as been givento thefac-tors that have limitedthe growth f localmanufacture nd widespreaduse of typesof farmequipmentsuited to environmentswhere theopportunityostof labor is verylow, but where adoptionof new technolo-gies may nonetheless require improved

equipmentto ease seasonal bottlenecks rpermitmore effective erformance f cer-tain operations. The new wheat varieties,forexample, are very sensitive o depthofplanting.) Historically, the reliance onprimitive ypes of equipment such as the"stickplow" made by a farmerhimself rby a village artisan has probably beenmainlya result of the lack of cash incomeand thedesiretominimize se of"external"inputs. The rapid increase in output and

farmcash income associatedwith the newhigh-yieldingarietieshas, however,givena considerable mpetusto tractormechani-zation in India, West Pakistan, nd certain

other developingcountries.And discrepan-cies betweentheprivate nd social profita-bilityof investmentn this type of labor-savingfarm quipmenthave contributedothe rapid increase in tractors n the pastfew years. n studiesfocusing n the situa-tion in West Pakistan,Kaneda [62, 1969]and Bose and Clark [10, 1969] have sug-gested that these discrepancies re the re-sultof: (1) marketwage ratesforfarm a-bor that overstate he opportunityost of

labor, (2) the underpricing f capital (of-ten associated withan overvalued xchangerate), and (3) thefact that thesocial costsof exacerbating roblems f unemploymentand underemployment,ecause alternativejob opportunitiesre not available forthelabor that s displaced,do not enter hecal-culus of individualfarmoperators.An ad-ditional factor that has probably contrib-uted to this tendencytoward premature

tractormechanization s the high level oftechnical efficiencyf tractors nd tractor-drawn equipmentwhich embodyan enor-mous amountof research nd developmentactivity arried ut ndevelopedcountries.

This historical xperienceof Japan andTaiwan seems to suggestthat an agricul-turalexpansionpaththatgenerates broaddemand for relatively imple implementshas important dvantages. It not only re-duces theforeign xchangerequirementsf

expanded farmoutputbut also maximizesthe positive interactions etween agricul-tural and industrialdevelopment nd thuscontributes o more rapid growthof non-farm output and employments.mprovedbut inexpensive quipment uch as bullock-drawn plows and cultivators, eed drillswith fertilizer ttachments,nd stationarythreshersre generally roducedby a largenumberofsmall firmshat make maximumuse ofdomestic esources includingother-




wise untapped sources of capital). Thistypeofgrowth fmanufacturingeads to abroad diffusionrocessthat maximizes heopportunities or "learningby doing" and

thuspromotes hedevelopment fentrepre-neurial and technical skills in the metal-workingfirmswhich play such a criticalrole in theassimilation f ncreasingly om-plex technologies nd in adapting them tolocal conditions. he importance f a broadand evolutionary evelopment f technicaland managerialcapabilities s underscoredby Kilby'sexamination ftheevidence per-taining o theperformance fentrepreneursin less developedcountries.He finds n thebasis of his own fieldstudies and the re-ports of otherinvestigatorshat entrepre-neurs n developing ountries re highly e-sponsive to economicopportunities, illingto risk theirown capital in long-term en-tures,and adept at marketing. here are,however, eriousand persistent eficienciesin the way that entrepreneurs n thesecountries performtheir roles relating tomanagement control and technological

efficiency63,Kilby, 970].The parallel development n Japan andTaiwan of a "semi-modern"ectorofsmall-scale firmsusing labor-intensive, apital-savingtechniques longsidethegrowth f amodern sector of large, capital-intensivefirms n those lines of productionn whicheconomiesof scale are of decisive impor-tance was facilitatedby several factors D

addition othe stimulus f ruraldemand forinputs nd consumer oods producedby the

semi-modernector 97, Ohkawa, 1965; 52,Johnston,1966]. Organizational arrange-ments, such as subcontractingbetweenlarge-scale enterprises nd small factoriesor householdworkshops,made it possibleforthe latter o expandas efficientnd via-ble unitsutilizing echniques ppropriate othe factorproportions btaining n Japan[102, Okita,1964]. The spreadof transportfacilities and the availability of electricpower in rural areas also facilitatedthis

dual pattern f ndustrial evelopment.There seems to be a growing recogni-

tion that the import substitution oliciesadopted in manydeveloping ountries ave

impeded the kind of structural hange re-quired for sustained growth nd have ag-gravated problems of unemploymentndunderemployment ecause they have re-sulted in underpricing f capital and over-pricing of labor [79, Little, Scitovsky, ndScott, 1970]. In analyzing the effects fsuch policies n the Philippines,J. William-son [140, 1969, p. 107] notes the similaritybetween his findings nd those of HenryBrutonand otherswho have focusedtheirattentionn Latin America.Williamson m-phasizes that in the Philippinesproductiv-ity-increasingmprovements ere impededand local firms had little ncentive o in-vest n thenecessary esearch nd develop-ment required to adapt capital goods im-ports to Philippineconditions."Moreover,"incentives were increasingly n favor ofhorizontalresource dispersionwhile back-ward inkages ntoparts-supplyingnd cap-

ital goods industrieswere penalized." Otherfactors fgreat mportancewerethe effectsofan overvalued xchangerate, incrediblylow interest ates"thatwere offered o fa-vored industriesby government inancialinstitutions,nd "highwages fostered yanill-advisedgovernment age policy," ll ofwhich encouraged the firms o substitutecapital for labor to a far greater degreethan was justified y prevailing actorpro-portions 140, Williamson, 969, p. 107]. In

describing he composition f output thatemerged,he quotes Bruton n characteriz-ing t as "so alien to factor ndowments hatfull utilization f existing apacity came todepend more,not ess,on theconstant lowof mports." he net effect fthe policymixwas to impedethepace ofindustrializationbecause intermediatend capital goods in-dustrieswere penalized, the transfer f la-bor from griculture o nonagriculture asslowed, and "these policies set domestic




consumeroodsdemand s theceiling oindustrialization"140,Williamson,969, .108].

Much fthediscussionnthis ection,n-

cludingHarryJohnson'sonceptionftheprocess f economic rowths "a general-ized process f capital ccumulation,"m-phasizes hatmany fthe mportantssuesof developmentolicyie inthe domain fpoliticaleconomywhichmodernecono-mists ave tended o eschew.This viewofthedevelopmentrocess oses n awkwardchallengeor conomicesearch.n empha-sizing he pervasivenfluencend impor-tanceofchangesn institutions,nknowl-

edgeandskills,nd norganizationalffici-ency,t suggestsheneed for varietyfapproacheso research.here s, ofcourse,a continuingeedfor nalysisfrates fre-turn n nvestmentndoftherole fpricesoffactorsndproducts.ricedistortionsf-ten havebeenan importantactormped-inggrowthnd structuralhange,nd rela-tiveprices nd marketmechanismsre animportantart of the "diffusion echa-

nisms"equiredo stimulatendsustain he

growthrocess. utmuchmore s involvedbecausedevelopment,n contrast o eco-nomic rowthmorenarrowlyefined,s byitsnature broadprocess fsocialchangeandmodernization.othingllustrateshismore mphaticallyhan he imple act hatunless heres diffusionftheknowledge,attitudes,ndmotivationhatwill eadtoaloweringfbirthratesithin reasonablyshort eriodoftime, nysetof economic

policiesscertainofail.HarryJohnson'snalysis ightlympha-sizesthat he mechanismsor oordinatingthegrowthfthevarious ormsf capital'involvemore han imply elyingn exist-ing marketmechanisms,nd the sortoffeedbackmechanismstressed y Rosen-berg ppear obe ofgreat elevanceode-vising olicies hat o justice o theuniqueproblems nd opportunitieshat confrontthe contemporaryevelopingcountries.

The fundamental roblem hey face, asGuy Hunter as emphasized,s "tobridgethegap between he16th nd20th entury"by paths hatwill be unique n important

respects nd whichmust e traveledmuchmore uicklyhan hedeveloped ountriespursued heir ourse f economicmodern-ization.Although he task thatconfrontsthese ountriess one of modernizingoci-eties n whicha large part of their co-nomic ctivitys based on techniquesmoreakin to 16th than 20th century urope,"they re surroundedy the 20th entury,not he16th." he disadvantagesfthe atedeveloping ations rise in part because

they re "bedeviled y nheritingr adopt-ing deas and standards eveloped rom hequite differentxperience, ircumstancesand needs of the world-dominatingndus-trialcivilization"46, Hunter, 969,pp.19-201.The technologiesvailable oftendo not suit theirneeds. Institutionsndstandardsfwelfarevolved romhe xpe-rience nd needs of the richest ountrieshave been introducedwithout ufficient

critical eevaluationndadaptationo ocalconditionsn thepart fforeigndvisersrdomestic ecision-makers.longwith hosedisadvantages,owever, he contemporarydevelopingountries aveenormouslym-portant otential dvantagesn the accu-mulated nowledgef modem cience ndtechnology.here s a vast range f tech-nologies nd a variety f institutionaln-ventionsnd organizationalevicesfromwhich o choose, ndmuchof this an be

adapted otheir eeds.A fundamentaliffi-culty, owever,s theverymultiplicityfthe options vailablecombinedwith theconstraintsmposed yshortagesf capitalin all its formswhichseverely imit heamount f nvestmentnd thenumber f n-novationshat repossible tanyone pointin time.Hence,theproblemsfchoice, ftiming,ndofsequence re ofcriticalm-portance.

Theunique eaturesndspecial omplex-




ity f thecontemporaryroblems fdevel-opment mphasize heneedfor ngeniousand imaginativeechniques o study omeof the criticalproblems onfrontinghe

late-developingountries.n their hought-ful ssay On theEpistemologyf he nex.act Sciences,"Helmerand Rescher 43,1959] emphasizehatnthe ocial ciences,especially, he nterpretationfdirect vi-dence such as thatprovided y statisticalsamplesmust e tempered y referenceobackgroundnformation.n the studyofproblems n the inexact ciences,whichwouldbe epitomized y some f thedevel-opmentssues onsiderednthispaper,we

are "constantlyaced with situations nwhichstatisticalnformation atters essthanknowledgefregularitiesn the be-havior fpeopleor nthe haracterf nsti-tutions, uchas traditionsnd customarypractices,ashionsndmores, ational tti-tudes nd climates fopinion,nstitutionalrules and regulations, roup aspirations,and so on."They lso stress thegreatm-portance ttached o expertsnd expertiseinthese ields"ecause he xpert andrawupona largestock fbackgroundnowl-edgeanda refinedensitivitys to tsrele-vance and to the weight hat shouldbegiven o the ndirect vidence rovided ygeneral ackground nowledge elative odirect tatisticalvidence. lthoughhe inebetween vaguenessnd vacuity"may bethin,t s significantecause reasoned eth-ods ofexplanationndprediction"an beapplied n ourpursuit f a better nder-

standing f the world [43, HelmerandRescher, 959, p. 30,381.Amonghemeth-ods thattheyproposefordealingmoreeffectivelyith the problems ssociatedwithinexactnesshey place considerableemphasisnsimulationechniques.heuseof such techniquess central o an in-triguingdea advanced y LloydReynoldsto facilitatenalysis falternativeatternsofchangenoutputndemploymentnd ntheir ectoral istributions.e suggestshat

a useful echniquemight e "a computer-ized version of old-fashioned icardianarithmetic,".e., imulationuns singllus-trative anges f values for thekeyvari-

ables n the ystemopermitxplorationfthe nteractingffectsfchanges ver imein a numberf variables 109,L. G. Rey-nolds, 969, p.98-100].

Anumber f he mportantroblemreasneed to be illuminatedy economistsork-ing n cooperation ith pecialistsnotherdisciplines,rat leastgivingerious tten-tion to the technical nd institutionali-mensionsftheproblem eing tudied.Acritical eed nmany ountriess for tud-

ies to determine hether adequate"re-sources rebeing llocated o agriculturalresearchnd whetherhoseresourcesrebeingdirected oward roblems fprimaryimportance.esearchs alsoneededto as-sess the effectivenessf institutionalr-rangementsor mplementingrogramsfagriculturalevelopment,iven he dmin-istrativeapacity fthegovernmenterviceand other eaturesf thesituationelatedto thestage n which country,rdistrictwithin country, inds tself n bridging"thegap between he16th nd 20thcen-tury." ther opics hatmerit onsiderationinclude nvestigationsf existing ax sys-tems ndpossible hanges hatwill nlargetax revenueswithout eriouslympairingproductionncentives; etailed tudiesofbackwardnd forwardinkages nd ofthesort of "feedback ffects"mphasized yRosenbergnd ofways nwhichheymight

be strengthened;tudies f andreformhattakeaccount fthepolitical nd adminis-trativeealitieshatwilldetermine hethera reforms actuallymplemented illbebeneficialrharmful.14nmany eveloping

4Raup's broad-rangingnalysis f land reformandagriculturalevelopmentndthecommentsnhischapter yThomasCarroll ndR. P. Doresug-gesta number f mportantssues hat allfor ur-therresearch107, Raup, 1967]. The recent ookon land reformyDoreenWarriner135,1969] isa goodexample ftheapplicationfthehistorical




countries, he greatestdeficiencies nknowledge elate o suchbasic nformationas statisticsfemploymentnditsoccupa-tional istributionnd ofcrop reas,yields,

and output. o some xtentconomistsanhelp to offsethese roblems y organizingsample surveys. he greatest eed,how-ever, s for nalyseso determinerationalsequenceto be followedn enlarginghecoveragend mprovinghequality f gov-ernmentalata-gatheringctivities.

The general roposition,fcourse,s thatresearch houldbe informedy an under-standingfthecharacteristicsf the coun-tries eing tudied nd of thefundamental

problems hich heyface. n my opinionthe choice of research opics should beguidedmore y a judgments to the ignif-icanceof theproblemhanwhethert hap-pens to be amenable o the techniques feconomic nd statisticalnalysis urrentlyin vogue n developed ountries.

and comparativemethod o the searchfor betterunderstandingf mportantroblems fagriculturaldevelopment. he discussion f thecomplex ela-tionship etween and reform nd developmentin herconcluding hapters outstanding.

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