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Agricultureand Structural
Transformationin Developing
Countries:A Surveyof Research
By BRUCE F. JOHNSTON
Food ResearchInstitute,
StanfordUniversity
lation and labor force and agriculture's the Union of South Africa,the M sector
share in GNP in the course of economicde- rose throughout,and the trends in the S
velopment.This phenomenon,firststressed sectorwere mixed. The differencebetween
by A. G. B. Fisher [30, 1939], is a major Australia and Japan in the initial level of
theme of Colin Clark's highly influential agriculture'sshare in nationalproductis an
Conditions ofEconomicProgress[21,1957], extremeexample of an importantcontrast
firstpublished in 1940. Further empirical in the conditions prevailing in the early
evidence based on long-termchanges in phase of modem economicgrowthin Euro-
the U.S.A., Sweden, and the U.K. is offered pean-settledcountriesand to a lesser extent
in a 1952 monograph by Ojala [101.]; in European countries,as comparedto late
Latil's 1956 volume [69.] focuses on long- developing countriessuch as Japan. Thus,
termchanges in France, but also examines agriculture'sshare in gross domesticprod-
the changes in the sectoral distributionof uct in Australia was only 22 percent in
populationand incomein the U.S. and U.K. 1861/65 and (in current prices) rose
Kuznets' 1957 monograph[66.]-"Quanti- slightlyto 23 percent as an average for
tative Aspects of the Economic Growthof 1934/35-1938/39. In contrast,agriculture
Nations, II. IndustrialDistributionof Na- accounted for 63 percent of net domestic
tional Product and Labor Force"-provides product in Japan in 1878-82 but its share
a thoroughexaminationof the changingin- had declined to 26 percentby 1923-27 [68,
dustrial structureof labor force and na- Kuznets,1966,p. 91].
tional product associated with economic The internationaldifferences in industrial
growth. Based on both cross-sectionand distributionof the labor force were very
time series data, his analysis examines similarto the differences in the distribution
changes in the sectoral distributionof na- of nationalproduct.The evidence available
tional productand labor force and also in- fromlong-termseries shows the expected
tersectoral differences in product per decline in the shareof the labor forcein the
worker. The internationalcomparisonsin A sector and a quite consistentrise in the
tlhe1957 monographand his 1966book [68.] share of labor in the S sector. The rise in
are based on a groupingof countriesinto the labor forceshare of the M sector,how-
seven classes according to per capita in- ever, is not nearlyas consistentas thissec-
come and deal with changes in threemajor tor's rising share in national product. The
industrialsectors: marked differencebetween the initial con-
Sector A-agriculture,fisheries,and for- ditions in European and European-settled
estry; countriesand in late-developingcountries
Sector M-manufacturing,mining, and (as representedby Japan) is also evidentin
construction; the data on labor force distribution.As
SectorS-all serviceindustries. early as 1890, agriculturerepresentedonly
On the basis of his internationalcompari- 26 percentof Australia'slabor force,where-
sons Kuznets finds a negative correlation as in Japan its share was approximately
betweenincomelevel and the A sector,pos- 85 percentin 1872 and was (still) 52 per-
itive correlationbetween income level and centin 1925-in spite of the rapid industrial
the M sector,while services did not vary expansionthathad takenplace [68, Kuznets,
systematically with per capita income. His 1966,p. 107].
analysisof long-termtrendsled to markedly This analysis of intersectoraldifferences
similarresults.In all 15 countriesforwhich in productper workeris based on a ratioof
time serieswere available, the A sectorde- the percent of the national product in a
clined throughout.In all but Australiaand given sector divided by the percentof the
A Surveyof Research
Johnston: 371
workersin that sector.On the basis of his GNP. The cross-sectionanalysis yields the
cross-section analysis, Kuznets finds that result that the "growthelasticity"for pri-
the relative product per worker in the A mary industry(agricultureand mining) is
sectorin the low-income countriesis partic- .494 and the growthelasticityfor agricul-
ularly low. Thus the contrast between the ture alone is .474. The growthelasticities
developed and underdevelopedcountries in for all other industrial sectors are much
productper workerin agriculture must be higher: 1.362 for industry,1.288 for trans-
even greater than in total product per port and communications,and 1,066 for
worker.As a tentativeexplanation, Kuznets other services.' The general pattern of
pointsout that the negative correlationbe- growthis reflectedin a rise in the share of
tween the percentageshare of the A sector industrialoutputfrom17 per cent at a per
in the labor force and its relative level of capita incomelevel of $100 to 38 percentat
productper workersuggeststhat countries a level of $1,000; manufacturing alone rises
with lower product per capita and larger from12 percentto 33 percentoverthe same
shares of theirlabor force in the A sector income range, and income from primary
may have an oversupplyof labor relativeto productiondeclines from45 to 15 percent
capital, hence a lower product per worker of the total.
in the A sector than in the countrywide A recent paper by Chenery and Lance
product. The analysis of long-termtrends Taylor [19, 1968] extends the analysis in
indicates that productper workerin t-heA several directions.This paper, which draws
sector rises relative to the countrywide on Taylor'sdoctoraldissertationas well as a
average,but the trendis not as clear cut as number of other empirical investigations
the contrastin the cross-sectionanalysis. carriedout since publicationof the 1960 ar-
The timeseries data also indicate thatrela- ticle,makesuse of timeseriesand cross-sec-
tive product per worker in the M sector tion data for both advanced and underde-
rises generallywhereas productper worker veloped countries.Econometrictechniques
in the S sectordeclinesrelativeto the coun- are applied to test for uniformities in pro-
trywideaverage. ductionrelationsas revealed by time series
and cross-sectiondata and for systematic
Patternsof IndustrialGrowth shiftsin theserelationsover time;a success-
More recent research relating to the ful attemptis made to improve the esti-
process of structuralchange has gone be- mates of these relationsby groupingcoun-
yond merely documentingthe secular de- tries in accordance with predetermined
cline in the relativeimportanceof the agri- criteria.
cultural sector. Chenery's 1960 article on Regressionanalysiswas applied to a sam-
"Patternsof Industrial Growth" [18.] ini- ple of 54 countriesthatrangefromthe low-
tiated a series of studies aimed at estimat- est to the most developed, with advanced
ing the natureof the relationshipsbetween
1 In his monumental empiricalstudyofIndustrial
economic development and industrial Growth and WorldTrade,Maizels [81, 1963] cal-
structure.In this firststudy a regression culates similar growth elasticitiesusing cross-
model was applied to cross-sectiondata for sectiondata for 1955 (30 countries)and pooled
51 countries,using per capita income and cross-sectiontimeseriesdata forsomeof themajor
industrial forselectedyearsbetween1899
countries
population as explanatoryvariables in a forhis "food,beverages,
and 1957. The elasticities
log-linear equation; the dependent vari- and tobacco" category(1.10 for the cross-section
forthemixedtimeseriescross-section) are
ables are the shares of primaryproduction and .78 than Chenery's,but presumablythis is
higher
(agricultureand mining), industry(manu- mainlybecause his categoryincludes beverages
facturingand construction),and servicesin and tobacco.
372 Journalof EconomicLiterature
countries accounting foraboutonlya quar- to above. Whereas a small,primary-ori-
terofthetotal.The numberofobservations entedcountry in themiddleincomerange
was increasedgreatlyby poolingcross-sec- tends to have only about 60 percentas
tiondataand timeseriesdatafort-he period muchindustry as a largecountry, thediffer-
1950-63.The simplestregression uses only ence varies greatlyamongindustries. As
per capita incomeand populationas ex- would be expected,the difference is con-
planatory variables,but thefitis improved centrated in sectorsthatareparticularly af-
appreciablyin otherregressions whichin- fectedby international tradeand compara-
clude additionalexplanatory variables:the tiveadvantage.
share of grossfixedcapital formation in Certaingeneralcriticisms have been di-
GNP,theshareofprimary exportsin GNP, rectedagainstthe use of broad industrial
and the shareof manufactured exportsin categoriesin analyzingthe development
GNP. process. In the early 1950s Bauer and
A particularly interesting featureof the Yamey[7, 1951;8, 1954] and severalother
Chenery-Taylor paperis theseparateanal- authorscriticizedstudiesthbat had stressed
ysesofthreedifferent development pattems theimportance of the process of structural
whichweresuggested bya seriesofstatisti- transformation. Ruttan'ssummaryof this
cal experiments.It was foundthattherela- debate[115,1968]notesthatthecriticisms
tionsbetweenchangesin industrialstruc- ofthevalidity oftheFisher-Clark emphasis
tureand risingpercapitaincomediffer ap- on the shiftfromprimary to secondaryto
preciablyfor countriesclassifiedas: (1) activities
tertiary was directedat the arbi-
"large countries,"i.e., with population trariness of thedistinctions and thelack of
greaterthan 15 million;(2) "small coun- uniformity of the income elasticitiesof
tries, industry-oriented," i.e., with their productsin the threecategories.(In fact,
tradeorientedtowardexportsof manufac- an important reasonforthehigherincome
turedproducts;and (3) "smallcountries, elasticityof demand for manufactured
primary-oriented, i.e., withtheirtradeori- productsin aggregate wouldseemtobe the
entedtowardexportsof primary products. factthatit is a moreopen-endedcategory
The lastgroupofcountries revealsa devel- thanAll Food becauseofthealmostunlim-
opmentpatternthat is notablydifferent ited possibilityof new productsbeing
fromthe firsttwo. In thisgroup,primary added to consumption patterns; thisaspect
production (whichincludespetroleum and does notseemto havereceivedattention in
miningin Chenery'sclassification) exceeds theliterature.) It has also been notedthat
industry up to an incomelevel of nearly officialstatisticson occupationaldistribu-
$800 whereas for large countries-and tion conceal the considerableamountof
small, industry-oriented countries-indus- timespentby members offarmhouseholds
trialproductionexceeds primaryproduc- on secondary and tertiary activities-handi-
tionat incomelevelsof about$275.Vene- craftproduction in thesecondarycategory
zuela, Malaya, and Iraq, whichhave the and transportation, trading,and personal
highest indices of primaryorientation, servicesas tertiary activities.
reflectthe effectof richnaturalresources It has been further emphasizedthatthe
on production structure mostclearly. seculardeclineof agriculture has been re-
Anotherinteresting featureof this1968 latedto thefactthatcertainactivities, such
paperis a preliminary reporton theanaly- as buttermaking,have been transferred to
sis of disaggregated industrial growthpat- nonfarmenterprises, and thatmanyfarm
terns.Analysisin relationto individualin- inputsformerly producedon thefarmhave
dustriessharpenedthe differences between been replacedby off-farm inputsproduced
the three"development patterns"referred by the industrial sector.W. 0. Jones,fol-
A Surveyof Research
Johnston: 373
lowingthe tradition of Bargerand Lands- nomicdevelopment reflectedin risingper
berg'shistorical study of American agricul- capita incomes and the declinein therela-
ture,places majoremphasison this"trans- tiveshareofagriculture in nationalproduct
fer of function" aspect of the processof and laborforcehas givenriseto a number
transformation
structural [59,Jones,1970;6, of attemptsto interpret thisphenomenon.
BargerandLandsberg, 1942]. Mostinfluential in theirimpacton theideas
A recentstudyby Folke Dovring[23, of development economists and the policy
1967] has made an important contribution prescriptions that they have enunciated
by providing estimates ofthemagnitude of have been thetwo-sector or dualisticmod-
the"indirect" (off-farm) laborused forag- els thathave soughtto identify the crucial
riculturalproduction. The tremendous in- featuresof the interrelationships between
creasesin productivity offarmlaborin the agriculture, roughly equatedwiththe"sub-
UnitedStateshave,of course,been associ- sistence"or "traditional" sector,and the
atedwitha greatincreasein theuse ofpur- morerapidlygrowing "modern" or"capital-
chasedinputsand increasing substitution of ist"sectorof a developingeconomy. Atten-
capitalforlaboras thesize of thefarmla- tionis givenfirst, however,to the various
borforcehasbeendeclining. Dovring'sesti- attempts to explainthe factorsresponsible
matesof"aggregated laborproductivity" in fortheobservedchangesin industrial struc-
U.S. agriculture indicatethattheassociated turein thecourseofdevelopment.
increasein "indirect" laborinputshas been Virtually all of thewriters who have at-
surprisinglysmall.A rapiddeclineinthedi- temptedto explaintheprocessofstructural
rect (on-farm) agriculturallabor force transformation and the seculardeclinein
fromtenmillionin the1920stofourmillion the relativeimportance of the agricultural
in 1960 was associatedwithonlya small sectorhave stressedtheroleof changesin
increasein theindirect laborused foragri- the composition of demandwithrisingper
culturalproduction-from 1.5 millionman capita income[21, Clark,1957-and espe-
yearsor somewhat morein 1920to about2 ciallypp. 339-40 of the 1940 (first)edi-
millionin 1960. The greaterefficiency in tion; 101, Ojala, 1952; 66, Kuznets,1957
the manufacture of inputsobtainedfrom and 68,Kuznets1966;15,Campbell,1960].
the industrialsector,resultingfromad- Particularemphasishas been givento the
vancesin scientific knowledgeand technol- factthatthe incomeelasticity of demand
ogy,has thusbeena dominant factorin the forfoodis almostalwaysless thanone-as
remarkableincreasein aggregatedlabor impliedby Engel'sLaw-and thatit tends
productivity in theagricultural sectorofan to declineas higherlevelsofper capitain-
advancedeconomylike thatof the United comeare attained.2 Chenerysuggests, how-
States.Dovringgeneralizesthatthe high ever,thatchangesin supplyconditions re-
ratesofincreasein laborproductivity in ag- sultingfromchangesin factorcostsassoci-
ricultureare " a function of the stage of atedwithincreasesin thesizeofa country's
economicdevelopment in whichthe coun- domesticmarketare also highlyimportant
tryfindsitself. . . and oftherelativesector [18,Chenery, 1960;19,Chenery andTaylor,
proportions betweenagriculture and other
industries"[23,Dovring,1967,pp. 20,22].
2A chapteron "Factorsinfluencing the Trendof
Food Consumption" in FAO's State of Food and
II. Theoretical of theProcess
Explanations Agriculture133.] for1957, a veryusefulsummary
based on cross-sectionand time-series data for a
of Structural and
Transformation numberof countries, demonstratesthe considerable
RelatedPolicyIssues uniformity in the relationshipbetween income
levelsand food consumption patterns[see also 13,
The inverserelationship
betweeneco- Burkand Ezekiel, 1967].
374 Journalof EconomicLiterature
19681. The changes in costs are attributed differential changesin productivity, have
primarilyto scale effectsand externalities. had a significant impactin alteringthe
The increasein the size of the marketis, of composition offinaldemand.
course, a functionof risingper capita in- Some of themostimportant and contro-
comes and increased specializationand ex- versialissuesofdevelopment policyrevolve
change as well as populationgrowth. about the interpretation of the processof
Kuznets has also emphasized"the impor- structuraltransformation, involvingas it
tance of changesin theproductionor supply does therelativedeclineoftheagricultural
side in explainingchanges in the industrial sectorand the increasingly dominant posi-
distributionof totalproductamong the ma- tionof the secondaryand tertiary sectors.
jor and minor sectors . . ." [68, Kuznets, To some,thisstructural transformation is
1966, p. 104]. He suggests that the very simplya consequenceof development-of
processesof industrializationand urbaniza- theincreasein productivity and incomesin
tion have required changes on the supply thevarioussectorsof an economythaten-
side. Especially relevant in this regard is tailschangesin thepattern ofconsumer de-
the large increase in "marketingservices" mandand thecomposition ofoutput.Other
included in retailoutlaysforfood in a high- writerstake the positionthat structural
income urbanized society. Data that Kuz- transformation should be viewed not
netspresentsforthe U.S. and Sweden show merely as a consequence of development
a very sharp decline in the percentof in- butas a processthatshouldbe deliberately
come devoted to food in termsof its pri- fosteredby policymeasuresto accelerate
mary cost-its value at the farm gate or developmentand to ensurethat low-in-
point of import-whereasthere has been a come,pre-industrial societieswill succeed
considerable increase in the share of in- in realizingtheirgoalsofachieving self-sus-
come spent on the processing,transporta- tainedeconomicgrowth.
tion, and distributionof food products.In Arguments relatingto the desirability of
the U.S. during the years 1949-57, only deliberateindustrialization havea longhis-
10.4 percent of personal consumptionex- toryand have emphasizedmanydifferent
penditurewas devoted to food as a primary aspects.Giventhepossibility and the goal
inputbut 13.2 percentwas devotedto "mar- of risingper capita incomes,in whicha
keting services" with the result that food wideningrangeof nonfarm productsand
expenditureat the retaillevel accounted on servicesconstitute an increasingly important
average for 23.6 percent of private con- fractionof consumerexpenditure, increas-
sumptionexpenditureduringthatperiod,a ing relianceon importsof manufactuLred
relativelysmall decline from32.6 percentin productsfinanced by primary exports is the
1869 [68, Kuznets, 1966, p. 275]. Although onlyalternative to a domestictransforma-
some of the additionalcostsassociated with tionintheindustrial structure ofproduction.
these services were "imposed" upon con- The literaturedealingwiththe tradeas-
sumers,the growthof demand forprocess- pectsof development problemsis huge,no
ing, transportation,and distributionser- doubtreflecting thelongtradition and the
vices was also a resultof various technical highlydevelopedstate of thisbranchof
innovations and other factors that economictheory.In a paper on "Interna-
influencedconsumer preferences.Kuznets tionalTradein Agricultural Products in Re-
furtherstresses that the innovationsthat lationto Development," Tolleyand Gwyer
have changed the characterof goods and havereviewedtheliterature oftherelations
services available to consumers,as well as betweenagricultural trade and economic
changes in relative prices associated with development and have examinedsome of
A Surveyof Research
Johnston: 375
thepolicyissuesand alternatives [133,Tol- An excellent summaryand analysis by
ley and Gwyer,1967].3Meier'streatise[85, Goreux [35, 1969] of the 1967 FAO publica-
1968] on The International Economicsof tion,Agricultural
Commodities-Projections
Developmentis a veryusefulexamination for 1975 and 1985 [31, 1967], is especially
of tradetheoryand theissuesof commer- relevantto the issues examined in this pa-
cial policypertinent to developingcoun- per. Concernover relativelyslow growthof
tries,buthistreatment oftradeand agricul- export demand for agriculturaland other
turalproductsis briefand does not give primarycommoditiesoftenfiguresas a major
muchattention to thespecialproblemsas- motivationforadvocatingindustrialization.
sociatedwithheavyrelianceon agricultural Goreux's statementsuggeststhat there are
exportsin countries wherelittlestructural cogent reasons for such concernin consid-
transformation has takenplace. Caves'ses- eringexportprospectsforagriculturalprod-
say [17,1965]on"'VentforSurplus'Models ucts. On the basis of a partial updating
ofTradeand Growth" presentsa highlyin- of the projectionspublished in 1967 FAO
terestingmodel suggestedby empirical has now reached even morepessimisticcon-
studiesof Canadiandevelopment by Ha- clusions with respect to the growthof ex-
roldA. Innisand by thewell-known article portsof agriculturalproductsfromdevelop-
by Watkins[136,1963]concerning therole ing countries.In a volume settingforththe
of resource-basedexportsin stimulating main conclusionsand policy implicationsof
economicexpansionin an underdeveloped its Indicative World Plan for Agricultural
economy.A provocative featureof Caves's Development, FAO summarizesthe main
paperis an extension of themodelto ana- reasons for the very unsatisfactorypros-
lyze developments in a regionin whichan pects for agriculturalexports,stressingin-
abundantsupplyof laboris the underuti- ter alia "the progressivesaturationof per
lizedresourcethatattracts capitaland tech- capita requirements in those importing
nicalknowledgefromadvancedeconomies countriesalready in higher income levels;
because of the possibility of establishing increasein competitionfromsynthetics .. .;
plantsforlocalmanufacture ofrelativelyla- competitionfrom production in the high
bor-intensive productsat lower unit cost income countries. . . ; importduties on
thanis possiblein thedevelopedregion[17, processed products. . . ; [and] low alloca-
Caves, 1965]. This extensionof Caves's tion of foreignexchange in Zone B coun-
modelseemsespeciallyinteresting in light tries [centrally planned economies] for
ofHarryJohnson's analysisofhow"techno- importsof tropicalproducts,withconsump-
logicalgap" tradeis likelyto give rise to tion per capita frequentlyheld a long way
"low-wage" trade[49,H. G. Johnson, 1969, behind what mightbe expected fromthe
p. 23]. prevailing income level" [32, FAO, 1969,
Vol. III, p. 12]. An importantthemein this
3 MacBean's book, ExportInstabilityand Eco- FAO report,and one which is certainto be
nomic Development[80, 1966], is an important the subject of considerable controversy, is
contribution thathas becomeavailablesinceTolley
and Gwyersurveyedthe literature. MacBean's an- the importance of very substantialconces-
alysis leads him to conclude that fluctuationsin sionsin productionand tradepolicies of de-
exportearningsin developingcountrieshave not veloped countriesto facilitatethe growthof
had significantdetrimental effectswithrespectto
short-term incomefluctuations growth
or long-term agricultural export earningsof developing
of income.Maizels, in an excellentreviewof the countries.A new feature,which reflectsthe
book, sets forthin some detail why he findsthat dramaticchange in productionprospectsin
MacBean'sstatistical analysisof thosetworelation-
ships is generallynot convincing[82, Maizels, a numberof developingcountriesresulting
1968]. fromthe availabilityof high-yieldingvari-
376 Journalof EconomicLiterature
etiesof rice,wheat,and maize,is theview amination of"EconomicDevelopment with
thatthedevelopedcountries shouldmodify Surplus Labour: Some Complications,"
theiragricultural policiesin a drasticman- LloydG. Reynolds[109,1969]suggests that
ner to enable the developingcountriesto "labourslack"is perhapsa bettertermto
shiftfroma situation oflargenetimports of describe a phenomenonwhich he, like
foodgrains in the 1960sto substantial net Lewis and manyothers,regardsas an im-
exports by 1985[32,FAO, 1969,Vol.II, pp. portant featureofunderdevelopment.
540-58]. The crucialfeatureofLewis'modelis his
Another majorconsideration thathasmo- analysisof the dynamicprocesswhereby,
tivatedemphasison industrialization has givenfavorableconditions, the surplusof
been preoccupation withthe expansionof manpowerin the "subsistence" or tradi-
nonfarmemployment opportunities for a tionalsector,whichis dominatedby, but
growinglabor force.ArthurLewis' well- not confinedto traditional agriculture, is
knownarticleson "EconomicDevelopment absorbedby themodernor "capitalist" sec-
with UnlimitedSuppliesof Labour" [75, tor.Lewis'modelandmostofthbe latertwo-
1954and 76, 1958]havebeen mostinfluen- sectormodelshave emphasizedan impor-
tialin focusing attentionon thedynamic as- tantasymmetry in theproduction relations
pectsofcapitalaccumulation and growth in prevailingin the traditionaland modem
a dualisticeconomy. Lewis,whoregardshis sector,in whichthe
sectors.The traditional
modelas an updatedversionoftheclassical bulkof an underdeveloped country's labor
growthmodel,postulatedthatin densely forceis engaged,is characterized by rela-
populated underdevelopedcountrieslike tivelyprimitive techniquesof production,
India,Egypt,or theWestIndies,"thereare verylimiteduse of capitalequipment, and
large sectorsof the economywhere the low productivity. Moreover,agriculture,
marginalproductivity of labouris negligi- pettytrade,and othercomponents of the
ble, zero,or evennegative."Lewis'first ar- subsistencesectorhave a specialcharacter
ticle appeared at a time when Nurkse's as "self-employment" sectorsof the econ-
book [94,1953]on capitalformation in un- omybecause of institutional arrangements
derdeveloped countries and othercontribu- suchas thepeasantfarmhouseholdwhich
tionshad arousedgreatinterest in thephe- is botha unitof consumption and of pro-
nomenonof "underemployment" or "dis- duction.HIence,workers inthesesectorsare
guised unemployment" in agriculture. In able to eke out an existenceeven though
theirbookon The Development oftheLa- the marginalproductof somemembersof
bor SurplusEconomy,Fei and Ranis [29, the laborforcemaybe less thanthe aver-
1964] formally incorporated a stageof "re- age productwhichroughly determines their
dundant"agricultural labor characterized of
level consumption.
by zeromarginalproductivity as an impor- Employment in themodern
opportunities
tant featureof their model. Lewis and or "capitalist"sector,however,are dis-
Nurkse,however, tooka more flexibleview tinctlylimited.Productionis based upon
and theirconceptof "surplus labor" in- concentrated ownershipof capital equip-
cludedan assumption if
that, necessary, the ment and the hiringof wage labor for
effectson agriculturaloutputofthetransfer profit-making purposes.Employment thus
of farmworkersto nonfarmemployment tendsto be offeredonlyup to the point
would be offset by adjustments withinthe where the productof the last workeris
agriculturalsector,including willingness on equal to theprevailingwage rate.Andbe-
thepartoftheremaining members offarm cause capital formation in the emerging
households toworkharder.In hisrecentex- manufacturing sectorhas not proceeded
A Surveyof Research
Johnston: 377
veryfar,thedemandforlabor-determined than the essentiallyheuristicmodel pre-
by thedownwardslopingmarginal produc- sentedby Lewis. The firstof two essential
tivityscheduleof labor-willbe smallrela- differences betweentheclassicalmodeland
tiveto thelargenumberof workers in the Jorgenson's neoclassicalmodelis thatJor-
traditional sectorwho are readyto accept gensonrejectsthe possibility of redundant
employment at a wage somewhat abovethe agricultural labor and assumesthatmar-
incomelevel in the subsistencesector.In ginalproductivity of laborin agriculture is
Lewis' formulation, unlike the Fei-Ranis alwvays positive.The secondand morecru-
model,it matters little"whetherearnings in cial contrast is thathe assumesthatit is the
the subsistancesectorare determined ob- growthof an agricultural surplusthatde-
jectivelyby thelevel ofpeasantproductiv- termines therateofgrowth ofnonfarm em-
ity,or subjectively in termsof a conven- ployment.4 Sinceit is quiteobviousthat,in
tionalstandardofliving"[78, WV. A. Lewis, a givensituation, the growthof nonfarm
1968]. Ohkawa and Minamihave argued employment can be restricted by eithera
thatin Japan,untila "Lewisturning point" shortage ofcapitalor a shortageoffoodfor
was reachedin theearly1950s,the supply the nonfarm population, it is impossibleto
oflaborexceededthedemandat theindus- establishby theoretical analysiswhichwill
trialwage rateso thatthe supplyof labor be thelimiting factor.
was effectively "unlimited"even though Jorgenson's viewthata growingagricul-
therewas a secularupwarddriftofsubsist- turalsurplusis botha necessaryand suffi-
enceearnings becauseofrisingproductivity '
The fullestformulation of Jorgenson's analysis
in agriculture[99, Ohkawa and Minami, was presentedat the Conferenceon Subsistence
1964; 89, Minami,1968]. A capitalistsur- and PeasantEconomicssponsoredby the Agricul-
plus will,of course,be generatedbecause tural DevelopmentCouncil and containedin a
volumeedited by Wharton[139, 1969]. His neo-
of the intra-marginal labor employed, and classicalmodel,withslightlydifferent assumptions,
reinvestment of the profitsin subsequent was presentedin an earlierarticle[60, Jorgenson,
periodswilllead to rightward shiftsof thbe 1961]. Jorgenson'stest of the alternativemodels
which,he believes,strongly supportstheneoclassi-
marginalproductivity schedule of labor cal modeland requiresone to "reject"the classical
withtheresultthatmoreand moreworkers model,is also containedin Adelmanand Thorbecke
willbe absorbedby theexpandingcapital- [1, 1966]. Stephen Marglin'sCommentin that
volume,whichalso considersthe fullerversionof
ist sector.In fact,Lewis' principalpurpose the paper presentedat the Conferenceon Subsis-
in formulating his modelwas to providea tence and Peasant Economics,raises some very
mechanismthat would explainthe rapid cogent questionswith respectto the validityof
some of the testsapplied by Jorgenson. A major
growthof savingin nationalincomein the part of Jorgenson'stest of the surpluslabor hy-
earlystagesof development ofan economy pothesisis based upon confronting implicationsof
whose growthis due to the expansionof the classicalmodelwithdata bearingupon Japan's
historicalexperience.But Marglinargues persua-
capitalistformsof production[78, W. A. sivelythat"theimplications of the'classicalmodel'
Lewis,1968].Eventually, providedthisex- turnout on close examination to be implicationsof
pansionprocessis not cut short,"capital assumptionsJorgenson(and others)have gratui-
touslybuiltintothe model,notimplications of the
catchesup with labour supply"and the classical theory"[83, Marglin,1966]. A recent
two-sector modelis no longerrelevant. articleby Minami,which presentsa similarbut
In an ingenious and provocative theoreti- more detailed theoreticalcriticismof Jorgenson's
"tests,"notesthatseveralof the "consequences"of
a
cal analysisof dual economy,Jorgenson Jorgenson's model derivefromhis use of a Cobb-
has compared"classical"and "neoclassical" Douglas productionfunction.Minami'sarticlealso
versions.His versionof theclassicalmodel providesempiricalevidencein supportof his view
thatLewis' two-sedtormodelwas relevantto Japa-
is intendedto approximate closelytheFei- nese experienceuntila "Lewis turningpoint"was
Ranismodelwhichis morefullyelaborated reachedin the 1950s [89, Minami,1968].
378 Journalof EconomicLiterature
cient conditionfor growthof the nonfarm have argued thatin such economiesagricul-
sector leads him quite naturallyto suggest turallabor is a relativelyabundantand low
that capital investmentthat accelerates the (opportunity)cost resourcebecause of the
growthof agriculturaloutputis likelyto be slow growthof demand forindustriallabor.
importantin permitting a low-incomeecon- Thereforethe expansionof agriculturalpro-
omy to escape fromhis versionof the low duction should be based mainly on labor-
level equilibriumtrap [60, Jorgenson, 19611. intensive,capital-savingtechniques,relying
In a pair of articlespublishedin 1962,Enke heavily on technicalinnovations[54, John-
also argued that capital should be com- ston and Mellor, 1961; 87 and 88, Mellor,
bined withruralland and labor to some ex- 1966 and 1967].
tent and not be combined only with labor On the basis of historicalexperience n
that has migrated to urban industry[26, Japan, Taiwan, and other countries,it has
Enke, 1962; 27, Enke, 1962]. been suggestedthat the productivity of the
It is somewhat shockingto agricultural existingon-farmresourcesof labor and land
economiststhat general economistssuch as could be increased greatlyby technicalin-
Jorgensonand Enke have felt it necessary novations involvingas key elements: (1)
to argue the case forsome investment in ag- agriculturalresearch leading to the devel-
riculture.But it is probablytrue,as Mellor opment and selection of higher-yielding
has suggested [88, 1967, p. 25; also see 91, varieties;(2) increasedapplicationof chem-
Nicholls,1963], thatfascinationon the part ical fertilizers;and (3) the range of activi-
of a number of development economists ties that facilitatewide use of fertilizer-re-
with the concepts of disguised unemploy- sponsivevarietiesand increasedapplication
ment or underemploymentin agriculture of fertilizers,togetherwith the associated
and with labor surplusmodels has contrib- practices required to realize the yield po-
uted to a tendency"to minimize the dif- tentialof thenew varieties.
ficultproblemof how a surplusis to be ex- Emphasis on raising the productivityof
tractedfromagriculture."This preoccupa- farm-supplied resourcesis relatedto thedis-
tion with "surplus labor" often seems to tinctionthat Ohkawa makes between "in-
have encouragedneglectof the agricultural ternal"and "external"inputs [98, Ohkawa,
sector as well as a tendencyto assume too 1969]. In economies in which little struc-
readilythata surpluscan and should be ex- tural transformation has taken place, the
tracted from agriculture,while neglecting commercialmarketforfarmproductstends
the difficult requirementsthatmustbe met to be small relativeto the numberof farm
if agricultureis to play a positiverole in fa- households, thereby imposing a severe
cilitatingoveralleconomicgrowth. constrainton the use of purchased inputs.
Agriculturaleconomistswho have been Rapid expansion of cash income fromex-
influenced by insights derived from the port crops has oftenprovided a means of
Lewis two-sectormodel have argued that easing this constraint.The projectionsre-
the nature of the interrelationshipsbe- viewed earlierwithrespectto the growthof
tween agriculture and nonagricultureat agriculturalexportssuggestthatforthe de-
different stagesof developmenthave impor- veloping countries,generally,this possibil-
tant implicationsfor agriculturaldevelop- ity is not likely to alter substantiallythe
ment policy. Johnstonand Mellor, for ex- factthatthe growthof effective demand for
ample, have stressed the importanceof a farm products will be constrainedby the
particulartype of strategyfor agricultural rate of structuraltransformation, although
developmentin countrieswhere littlestruc- some individual countries may achieve
tural transformation has taken place. They rates of increase in export earnings well
Johnston:A Survey of Research 379
above the average by enlargingtheirshare portance of incentivesand the availability
in world markets.Some of the multisectoral of profitable innovations. A number of
models discussed in the followingsection econometricstudies, ably summarizedby
consider these interrelationships,but it is Krishna[64, 1967], have providedmorefor-
well to emphasize here the interdepen- mal evidence concerningthe price respon-
dence that exists between the choice of sivenessof farmersin developingcountries.5
technique in agriculture,the intersectoral The remarkable results now being
allocationof resourcesas it affectsthe pro- achieved with the high-yieldingvarietiesof
cess of structuraltransformation, and the wheat, rice, and maize have provided dra-
potentialthatexistsforenlargingfarmcash matic supportforthe view tllata large po-
incomes and foreignexchange earningsby tentialexistsfor increasingfarmoutput in
expandingagriculturalexports. the developingcountriesby technicalinno-
Those who have argued the advantages vationsthatincreasethe productivity of the
of a labor-intensive,
capital-savingstrategy farmsuppliedresourcesoflaborand land [2,
for promoting agricultural development Asian DevelopmentBank, 1969; 139,Whar-
have also emphasizedthe importanceof the ton, 1969]. Experienceleading to the devel-
potential that exists for the international opmentof the Mexican "dwarf"varietiesof
transferof technical innovations.Until a
few years ago this view was to a consider- The volumeSubsistenceAgriculture and Eco-
able extentan articleof faith,that success nomic Development[139, Wharton,1969] con-
realized by agriculturalresearchprograms tains a numberof importantcontributions which
examinethe influenceof social, institutional, and
in temperateregions could be repeated in culturalfactorsand theireffecton the motivations,
the tropical and subtropicalregionswhere values, and behavior of peasant farmers.Gelia
the contemporaryunderdeveloped coun- Castillo's delightfuland devastatingcritique of
Rogers' attemptto characterize"a subcultureof
tries are mainly located. Agriculturalre- peasantry"and Firth'sdiscussionof the influence
searchin the developingcountrieshad been of social structureupon peasant economiesare
largelyconfinedto importantexportcrops, especiallynoteworthy. A significant pointempha-
sized by Castillois thatinstancescitedto demon-
and the success achieved in developing stratethe lack of innovativeness on the part of
high-yieldingvarietiesof sugarcane,cocoa, peasant farmershave frequently been due to the
oil palm, and othertropicalplantshas been failureof researchworkersand agriculturalad-
ministrators to take account of actual conditions
cited in supportof the view that strength- and constraints at thefarmlevel.The assertionthat
ened research programs would generate "farmers are simplyresistantto change"can be a
profitableyield-increasinginnovationsap- convenientexcuseforthe failureof scientistsand
administrators to make available feasibleinnova-
plicable to the majorfood cropsof thesere- tionscharacterized by an acceptablelevel of risk
gions [84, McPhersonand Johnston, 1967]. and promising returnsthatadequatelycompensate
Accumulating evidence concerning the for the extralabor and cash outlay [16, Castillo,
1969, p. 139]. In a similarvein,Mellor[88, 1967]
responsiveness of small-scale farmers to suggeststhat "It is ironicthat the peasant is ac-
economic incentives underscores the im- cused of ignoranceof whichsocietyis guilty,"i.e.,
portance of innovations that offersome- the failureof governments in many countriesto
recognizeand act upon the opportunities forhigh
thingworthwhileto "extend."Justa decade returnsto modestsocial investment to providean
ago W. 0. Jones[57, 1960] broughttogether environment in which the peasant can be more
a persuasive collection of evidence chal- productive. Brewster'sprovocative analysis of
"traditional as barriersto change"
social structures
lenging the then prevalentstereotypecon- places majoremphasison characteristics of village
cerning"tradition-bound farmers"in tropi- societiesthatmakeit difficult to createthenetwork
cal Africa.A major contribution of Schultz's of "large-scalespecializedunitsof collectiveaction
which are necessaryfor developmentand wide-
Traditional
Transforming Agriculture
[121, spreaduse of increasingly productive technologies"
1964] is its eloquent emphasis on the im- [11, Brewster,1967, p. 67].
380 Journalof Economic Literature
also natural resources, social capital, hu- Vernon Ruttan stressaspects of marketing
man skills, and the technical and organi- policy thatare highlypertinentto thisview
zational knowledgeaccordingto which the of the developmentprocess.Thus Jones[59,
human and materialfactorsof production 1970] emphasizes that in choosingpolicies
are combined in the production process. withrespectto agriculturalmarketing, con-
Labor, on the otherhand, is conceivedof in siderationshould be given to the ways in
the narrowsense of the availabilityof hu- which different typesof marketingarrange-
man time [49, Johnson,1969, pp. 9, 15]. mentsfosteror impede the processof evolv-
Withinthisconceptualframework, he char- ing the increasinglycomplex network of
acterizesthe processof economicgrowth economic exchangethatis an essentialfea-
as a generalized processof capitalaccumu- tureof a modern,market-oriented economy.
lation,thatis,ofinvestment in theacquisition In an analysis of agriculturalproduct and
of largerstocksof thevariousforms of capi- in Southeast Asia, Ruttan
tal; and the condition of being"developed" factor markets
consistsof havingaccumulated,and having [116, 1969] concludesthattraditionalprod-
established socialandeconomic
efficient mech- uct marketsperformreasonably well but
anismsformaintaining and increasing large
stocksofcapitalperheadinthevarious forms. thatmarketsforfarminputsare poorlyde-
Similarly, the condition of being"under-de- veloped and inefficient.8 His tentativeex-
veloped"is characterized bythepossession of planationof this dichotomyin marketper-
relativelysmallstocksof thevariouskindsof formanceis that existingdistributionchan-
capital,and theexistence of relatively
weak
and inefficient mechanisms for maintaining nels are effectivefor transmitting price in-
and increasing thosestocks,particularly of formationbut ineffectivefor transmitting
inefficientmechanisms for coordinating the the more complex technical knowledge
growth of thevariousformsof capitalso as
tokeeptheratesofreturn onthemroughly in concerningthe characteristicsand use of
alignment, and highenoughto encourage ac- new inputs.The learningrequirementsfor
cumulation [49, Johnson, 1969,p. 91.
effectivedistributionof almost totallynew
That "the mechanismsfor coordinating itemssuch as chemicalfertilizersand insec-
the growthof the various formsof capital" ticides are certainly considerable. Diffl-
-are generally inefficient is not surprising. culties are compounded because initially
There are both inherentproblemsand spe- demand will oftenbe limited,and the sea-
cial shortcomingswithindeveloping coun- sonalityof demand complicatesthe problem
triesthatmake it difficult to coordinatethe of ensuringthat supplies are available on
growthof physical capital and investment timeand in the rightplace.
in knowledge productionand in the crea- Beyond the problems of achieving effic-
tion of human capital "so as to keep the ient market mechanisms, however, "the
rates of returnon them in alignment,and process of growthwill be stronglycondi-
high enough to encourage accumulation." tionedby the natureand qualityof political
Althougha competitivemarketsystemcan decisionsin the relevantareas, and also by
be a valuable mechanismforguidingmany the extentto which the workingsof market
allocation and investmentdecisions, "im- decision processes fall shortof optimality"
provementof the degree of integrationof because of such problems as externalities
the [market] systemand of the quality of [49, Johnson,1969,pp. 9-10]. In additionto
the informationit generates and dissemi- the familiarconsiderationswhich account
nates is itselfpart of the process of eco- for the fact that investmentdecisions with
nomic development"[49, Johnson,1969, p.
8
9]. In addition to the literatureon agricultural
marketing reviewedby Ruttan,reference shouldbe
Recent essays on agriculturalmarketing made to recentstudiesbyLele [73, 1968] and Jones
in developingcountriesby W. 0. Jonesand [53, 1969].
Johnston:A Survey of Research 391