Agriculture and economic development in developing countries

An engine for growth

Agriculture can provide many practical solutions to the economic development of emerging countries. It is key for leaders and government policy-makers to seize the opportunities provided by such a green engine for growth, since agriculture is one of the main components of sustainable economic and social development.

The biggest challenge for emerging and developing countries is to transform traditional agricultural sectors, developed over centuries and deeply embedded into the socio-economic structures of society, into more industrial economies. Increase in output and productivity are essential to sustain urbanization and industrialization in developing countries. Yet, the development of industrial (and capital intensive) agriculture also needs to benefit smallholders and those living in rural, impoverished areas, while ensuring enough resources for the future.

In the 1960’s, Johnson and Mellor published a paper titled “The role of Agriculture in Economic Development”[1] in which they investigated agriculture’s contribution to growth. Not only does agriculture fuel economic growth through the provision of food and the necessity for unskilled labor, it also supplies capital and labor to other industrial sectors and can serve as a market for industrial output and innovation.

For unskilled labor and sustainable growth

While some may doubt the impact agriculture has on overall economic development, empirical and historical evidence prove its necessity to a functioning economy.

Strong agricultural actors of past centuries are considered today among the most economically-advanced countries. Increase in agricultural productivity and international trade transformed labor and made it available to other industries. Moreover, economists Bravo-Ortega and Lederman published a World Bank paper[2] in 2005 wherein they showed the important positive effects agricultural development could have on national welfare. There is indeed a strong interdependency between agricultural sectors and non-agricultural activities, with the former significantly contributing to the development of the latter.

Christiaensen, Demery and Kuhn (2011)[3] have deconstructed the effects of agricultural development and growth on national welfare and discovered that the sector had a large growth multiplier effect on poverty reduction, especially at an early stage of economic development. Since lower-income households play a large role in contributing to agriculture, improvement in the sector leads to more poverty reduction than in non-agricultural sectors.

A need for public intervention and expenditure

In most emerging countries, agriculture is the impoverished relative of public expenditure. While the New Partnership for Africa Development^[4] (2001) advised Sub-Saharan African countries to allocate about 10% of public expenditure to agriculture, most countries proved unable to achieve such a target. Western and other developed countries that finance overseas development assistance have also neglected agriculture in recent decades. An effort is required by both emerging countries and developed economies to remedy this financial flaw.

What can be the role of the State to foster and sustain such development? Where is financing crucial? The transition from traditional agricultural production to an industrial system requires land tenure reform so that individual farmers can observe the possibility of personal gain (cf. agrarian reforms and land redistribution in eastern Asia in the late 20^th century) and trained individuals can supply the sector with the agricultural research needed to fuel innovation. A major emphasis should thus be placed on large expenditures for educational and vocational training.

Another central component to allow for the emergence of a productive economy is conventional infrastructure, required not only for agriculture but also for overall development (mobile phone penetration, roads, electricity, etc.).

By Joseph De Reboul

[1]Johnston, B. F., & Mellor, J. W. (1961). The role of agriculture in economic development. The American Economic Review, 51(4), 566-593.

[2]Bravo-Ortega, C., & Lederman, D. (2005). Agriculture and national welfare around the world: causality and international heterogeneity since 1960 (Vol. 3499). World Bank Publications.

[3]Christiaensen, L., Demery, L., & Kuhl, J. (2011). The (evolving) role of agriculture in poverty reduction—An empirical perspective. Journal of development economics, 96(2), 239-254

^[4] http://www.nepad.org/programme/comprehensive-africa-agriculture-development-programme-caadp