Agriculture in economic development: primary engine of growth or chicken and egg?

Agricultural and overall economic performance pre-1979 stands in marked contrast to post-1979 performance. During pre-1979, China wanted to leap forward to become an industrial power. Instead, it hobbled at an average annual growth of 3.0% (1950-1978). Agriculture's annual growth averaged 2.99% (1952-1978). The annual growth rate of total factor productivity in China during 1952-1981 was only 0.5%, well below the levels of 19 other developing countries. Under this strategy, China built a substantial industrial base but at a high cost, in terms of increasing inefficiency and substantial foregone consumption (Dernberger 1999). It was a largely closed economy as the autarchy of its import-substituting industrialization-first strategy was reinforced by geo-political tensions. To generate the surplus to invest in industry, China had virtually no other option but to tax agriculture, which it did using a variety of socialist tools. Moreover, prices were slanted in favor of industry and of urban dwellers subsidizing their food, housing, and other needs. In contrast, very little was re-invested back in agriculture in return. The main capital investments in rural areas were primarily in the form of labor-intensive mobilization drives for constructing irrigation works. Strong urban bias in supporting both investment and consumption persisted into the late 1980s (Johnson 1992).

In contrast, TFP in agriculture increased sharply during the later period (1977 to 1987). China's sustained growth performance of 8-10% per year post-1979 has been driven by market and export orientation, including high levels of foreign direct investment (FDI).

What was the role of agriculture in China's transformation? The overall economic performance of the earlier period (pre-1979) undermines the polar view that agricultural development can always be bypassed; that of the later period (post-1979) supports the claim that it can make a substantial contribution to overall economic transformation, without acting as the primary engine of overall growth.

Summary and Conclusion

We have been addressing both substantive and methodological issues in the assessment of agriculture's role in economic growth. Having become convinced that cross-sectional econometric studies, popular as they may be, are proving of quite limited use in sorting out fundamental issues in economic growth, we are attempting an alternative approach using Popperian ideas of refuting falsifiable conjectures in country case studies. These case studies, being carried on in depth in our ongoing work, so far do not provide the clean refutations that we would like to obtain of the polar views about agriculture in economic growth. These and other case studies, however, undermine both polar views.

Our conclusion is that neither polar view applies, as evidenced by the four country cases with very different histories and institutional structures. There are other underlying factors. Methodologically, we believe our approach has advantages over cross-sectional econometrics. It provides less-constrained ways of data-based assessment of hypotheses. At the least, it provides helpful analytical information that economists can use to better formulate their econometric work. Economists can then proceed more fruitfully in evaluating and taking the next steps in developing refutable hypotheses about causal relationships underlying economic growth.

Principal Paper Sessions

Causes of and Constraints to Agricultural and Economic Development (Wyatt Thompson, University of Missouri and Laurian J. Unnevehr University of Illinois at Urbana-Champaign, Organizers)

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Isabelle Tsakok is Visiting Research Associate and Bruce Gardner is Professor in the Agricultural and Resource Economic Department, University of Maryland, College Park.

This article was presented in a principal paper session at the AAEA annual meeting (Portland, OR, July 2007). The articles in these sessions are not subjected to the journal's standard refereeing process.