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The Role of Agriculture in Economic Development

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• Emelie Rohne Till 2  

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The book’s main research focus is the role of the agricultural sector in economic development. This chapter discusses the main theoretical underpinnings of this role based on the extensive body of literature on this subject. The chapter covers both the role of agriculture for economic development and the development of the agricultural sector itself with a focus on the macro-level drivers of agricultural development.

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• Agriculture for development
• Agricultural development

The book’s core research focus is to understand the role that the agricultural sector can play in economic development as well as the role of the agricultural transformation in the broader processes of economic and structural transformation. These processes involve the sectoral shift of output and employment away from low-productive agriculture into more productive activities. They are generally accompanied by a greater diversification of livelihoods both on- and off-farm, stronger rural and urban interaction, and the creation of more employment and investment opportunities outside the agricultural sector (Mellor, 1976 ; Timmer, 1988 ; Jayne et al., 2018 ).

Agriculture for Development

Agricultural and development economics both emerged as sub-fields in the middle of the twentieth century (Arndt, 1987 ; Barrett et al., 2010 ). Since then, the view of the role that agriculture can play in economic development has shifted over time. Early perspectives in the 1950s and 1960s emphasize a largely passive role of the agricultural sector (Lewis, 1954 ; Hirschman, 1958 ; Ranis & Fei, 1961 ; Jorgenson, 1961 ). In this view, agriculture’s contribution to development is to reallocate labor and indirectly contribute to much-needed savings and investments in the modern sector; the sector was mainly regarded as a reservoir of labor and transferable surplus. This was followed by research that further downplayed the role of agriculture in economic development based on the core concept of the Prebisch–Singer thesis, suggesting deteriorating terms of trade for primary products in relation to industrial goods (Singer, 1950 ; Prebisch, 1959 ; Preobrazhensky, 1965 ).

The mid-1960s saw a shift toward viewing agriculture as a potential engine of growth. This change in perspective followed the contributions of Johnston and Mellor ( 1961 ) on how agriculture can contribute to growth in the overall economy through various linkages (labor, food, foreign exchange, market, and domestic savings). In the 1980s, the view shifted again, this time toward an industrial focus. This tendency was followed by several studies in the 1990s and early 2000s, arguing that agricultural growth stems from, rather than leads to, overall growth (Estudillo & Otsuka, 1999 ; Gardner, 2000 ; Mundlak et al., 2004 ). However, since around 2005, the view that agricultural growth can drive overall growth has resurfaced. This perspective is exemplified by the 2008 World Development Report on agriculture (World Bank, 2007 ) and the signing of the Maputo Declaration in 2003, in which all African leaders of state committed to dedicating at least 10% of public spending to agriculture (AGRA, 2018 ).

Four main theoretical schools of thought can be identified as having influenced the shifting debate outlined above (see Andersson & Rohne Till, 2018 for an elaborated discussion). First, according to the “fifth wheel” school, agriculture is not by itself seen to stimulate economic development, although it might stifle the process if neglected (Lewis, 1954 ; Ranis & Fei, 1961 ; Jorgenson, 1961 ). Second, the Chicago school emphasizes rationality and anti-distortions, led by the work of Schultz ( 1964 ) and his followers (e.g., Krueger et al., 1988 , 1991 ; Anderson, 2009a , 2009b ). The third main school of thought focuses on the role of agriculture in trade; agriculture is seen as either a break (Prebisch, 1959 ) or an injection (Myint, 1958 ). The fourth school of thought views agriculture as a potential driver of growth. One strand of this diverse school of thought has its roots in structural change analysis, understanding the relative decline of agriculture in the process of long-term economic growth (Clark, 1940 ; Kuznets, 1961 , 1966 ; Chenery & Syrquin, 1975 ). A related strand emphasizes agricultural growth’s potential to strengthen the domestic market, thereby stimulating aggregate growth. Adelman ( 1984 ) explicitly theorizes this mechanism in her development of the concept of agricultural demand-led industrialization (ADLI).

The agriculture-for-development view has been a prominent perspective on the role of agriculture in economic growth since around 2005. While agriculture’s role in stimulating growth and reducing poverty has also been questioned during this time (Ashley & Maxwell, 2001 ; Hasan & Quibria, 2004 ; Ellis, 2004 ; Collier & Dercon, 2009 ), agriculture’s contribution to economic growth has much support in the economic history of today’s high-income countries in Europe and East Asia (Ohkawa & Rosovsky, 1960 ; Bairoch, 1973 ; Johnston & Kilby, 1975 ; Timmer, 1988 ; Lains & Pinilla, 2009 ). A core assumption of the agriculture-for-development perspective is that farmers in low-income countries, often working small plots, can be efficient producers capable of generating a surplus that can benefit the wider economy (Mellor, 1976 ; Lipton, 2005 ; World Bank, 2007 ; Diao et al., 2010 ). As such, increasing the productivity of these small farmers is a key concern. In addition to increases in agricultural productivity among farmers, a thriving rural nonfarm sector and diversification toward higher-productivity crops are also important elements of success. However, while the rural nonfarm sector can be a productive outlet, it is also a very diverse sector, including petty and under-capitalized activities with very low returns to labor and also productive activities that are better rewarded. The nature of the sector is likely linked to the dynamism of agriculture and the general economy (Wiggins et al., 2018 ).

The concept of ADLI is of special importance for the current research, given the connection between Adelman’s academic concept of ADLI and Ethiopia’s implementation of ADLI. Drawing on Singer ( 1979 ), Adelman ( 1984 ) developed ADLI as a development strategy emphasizing the importance of agricultural growth in stimulating overall production and growth. Under ADLI, agricultural growth arising from increased agricultural productivity (stemming, in turn, from increased rural investment and technological innovation) stimulates aggregate growth; agricultural growth increases farmers’ incomes, which generates demand for locally produced non-tradable products. This farm demand for domestic non-tradables is the main link between agricultural growth (raising farmers’ incomes) and nonagricultural growth.

Empirically, ADLI was first tested in Adelman’s ( 1984 ) seminal paper, in which she simulated growth scenarios comparing an export-led (in essence, manufacturing-led) industrialization strategy and ADLI, for South Korea in 1963. She found that while both strategies would generate growth, ADLI would lead to better overall development compared to export-led growth, as ADLI led to higher labor absorption, more equal distribution of income, less poverty, and a higher rate of per capita economic growth (Adelman, 1984 , p. 939). These results mainly stemmed from the linkages generated by the agricultural sector that were stronger than those generated outside of agriculture, as farm households demanded more goods and services from domestic food and nonfood industries than other households. In the simulations, the same amount of investment was channeled into the export sector or the agricultural sector. This led Adelman to conclude that ADLI at some stages of development both generated better economic development and yielded a higher rate of return, and should therefore be prioritized. Other studies that have explicitly tested ADLI include Vogel ( 1994 ) and Bautista et al. ( 1999 ). Moreover, much of the work on calculating agricultural multipliers and linkages (as summarized by Haggblade et al., 2007 ) shares a similar rationale as Adelman’s study. Overall, this literature finds that an ADLI strategy can contribute considerably to overall economic growth.

Adelman’s ADLI strategy was intended to be an alternative development strategy for low-income countries. However, Adelman did not claim that ADLI was always the right choice for this type of countries. Instead, the strategy mainly targets countries that have (1) a potentially large domestic market and (2) an industrial base with established supply responsiveness. Adelman and Vogel ( 1991 ) explored the implications of these criteria for successful ADLI implementation in sub-Saharan Africa (SSA). They found that while agriculture has relatively strong linkages in SSA, most countries do not fulfill the second criteria of established supply responsiveness (because the manufacturing production capacity is quite limited, many types of consumer goods are not produced domestically, and most intermediates and machinery are imported). Therefore, they concluded that an ADLI strategy was unlikely to be successful in most SSA contexts. Thirty years later, it seems that the Ethiopian implementation of ADLI may be proving their pessimistic predictions wrong.

Agricultural Development

As the realization of agriculture for development depends on agricultural growth, this section provides a brief contextualization of the literature on agricultural development. The literature on the drivers and features of agricultural change is vast, and much important work has been done on the subject in the post-war era (Barrett et al., 2010 ). In general, the macro-level conditions needed for agricultural development are well-known: a reasonably stable macro-economic and political environment, effective technology transfer, and product and factor markets that are functional and accessible (Mosher, 1966 ; Tsakok, 2011 ). However, these insights do not allow for a specific understanding of how on-the-ground, micro-level change is engendered. Agriculture is, in essence, a private activity undertaken by millions of individual actors (Mellor, 2018 ). Therefore, village-level studies and analyses of localized production systems are needed to get closer to an understanding of what drives agricultural production and productivity increases (Wiggins, 2000 ; Andersson Djurfeldt & Djurfeldt, 2013 ).

However, while agriculture is a predominantly private activity taking place at the micro-level, the success of individual farmers is conditioned by public and macro-level forces. Agricultural growth—and its potential benefits—depends on favorable developments in the economic and political environment, technology transfer, and product and factor markets. The literature on what drives these conditions is large, and at least four major drivers are proposed in the literature: factor relations (Binswanger & Ruttan, 1978 ; Hayami & Ruttan, 1971 , 1985 ), population dynamics (Boserup, 1965 ), technology availability (Otsuka & Kijima, 2010 ; Estudillo & Otsuka, 2013 ; Otsuka & Muraoka, 2017 ), and the state (Djurfeldt et al., 2005 ; Hazell, 2009 ; Henley, 2012 ; Frankema, 2014 ). This book is particularly concerned with the strand of the literature on macro-level agricultural development concerning the role of the state, as elaborated on in Chap. 3 . However, this focus should not be seen as a quest to identify one single driver of agricultural growth. Such a quest would be futile, as the process is much too complex, and multiple factors both drive growth and affect each other. The macro-level forces of agricultural change are not substitutes; in any context of agricultural change, the state, factor and product markets, technology, and population dynamics are complements that act and react in the same environment.

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Rohne Till, E. (2022). The Role of Agriculture in Economic Development. In: Agriculture for Economic Development in Africa. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-07901-6_2

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