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A two-sector model of a developing country consisting of agriculture and industry is presented. Growth and structural change are discussed in variants with exogenous as well as endogenous technical progress, algebraically and by numerical simulations. Consequences from taking into account peculiarities of food production and consumption are analyzed. These include technology adoption in agriculture, Engel's law and a relationship between the level of nutrition and productivity.

Inhaltsverzeichnis

Frontmatter

1. Introduction

Abstract
Inquiries into the “Nature and Causes of the Wealth of Nations” (Smith, 1776) are as old as the history of economic thought. Periodically, interest revives for the questions why some countries are poor and others rich, some industrialize and others remain agricultural, and why some countries have high growth rates of GDP while others experience even a decline. The last wave of research, which is by now well known under the heading “New Growth Theory” (NGT), began with work of Romer (1986) and Lucas (1988). It finished a period of tacit consensus among economists that problems of developing countries are dealt with in the field of development economics while growth theory, if it has any relevance at all, is only applicable to growth behavior of modern, industrialized economies. Since then, economists are again on the search for a single theory explaining growth and development of rich and poor countries alike.
Thorsten Wichmann

2. Economic Development, Endogenous Growth, and Agriculture

Abstract
This chapter reviews the literature upon which the subsequent analysis is based. We start in the first section by describing the different mechanisms of endogenous growth and then show in the second section where this new methodology is applied to questions of economic development. As a counterpoint to this new analysis of development, we present in the third section some older discussions about the role of agriculture in economic development which is largely neglected in the new work. These discussions originate in development economics rather than in growth theory. In the last section we show how the new ideas can be combined with the older insights and set the agenda for the subsequent chapters.
Thorsten Wichmann

3. The Dual Economy Revisited

Abstract
In this chapter we introduce the baseline model for our analysis of growth and development in a dual economy. It is descendant from the dual economy models developed around 1960. However, while the latter are mostly descriptive, the model presented here is a social planning exercise describing the optimal behavior of an economy. Although most economies in reality are probably not always on their optimal growth paths, it is also discussed whether the model is able to replicate important stylized facts of economic development. These stylized facts are: (i) a decline in the proportion of agricultural labor from 70% to less than 20% as quantified by Dixit (1973, 328), (ii) a duration of this process of roughly 100 years as observed by Kuznets (1966) for the United States and Japan, and (iii) an increase in labor productivity in both sectors.1
Thorsten Wichmann

4. Endogenous Growth in the Dual Economy

Abstract
In this section the baseline model is extended to endogenous technical progress in agriculture. Technical progress in manufacturing remains exogenous. While it would, in principle, be possible to introduce some research or human capital accumulation decision also in the second sector, this study focuses on agriculture as set out in chapter 2. Extending the model towards endogenous development allows us to discuss determinants of productivity improvements in agriculture as well as their macroeconomic effects. Within the set-up chosen here, this discussion is not confined to growth effects but includes also the economy’s structure. The focus is in this chapter on technology creation as well as on human capital investment. Both issues have been discussed intensively in empirical and theoretical studies alike, although mostly from a microeconomic perspective. Most macroeconomic studies have taken productivity improvements in agriculture as exogenous and have considered only their consequences. Here both issues are discussed together. Using tools from the NGT, determinants of productivity improvements as well as their effects will be analyzed within a single macroeconomic model. As in the last chapter, the model allows us to distinguish between growth and level effects as well as between influences on an economy’s structure and on its growth performance. Like above, we will confront the model with the stylized facts set out at the beginning of chapter 3.
Thorsten Wichmann

5. Technology Adoption and Catch-Up

Abstract
So far technology in agriculture has either been assumed as growing exogenously (chapter 3) or as being immediately adopted after invention (chapter 4). While this has provided some insights about growth and structural change it has totally neglected the process of technology adoption itself which can be defined as “the process of spread of a new technology within a region” (Feder, Just, and Zilberman, 1984, 257). In this chapter the models derived previously are modified to discuss technology adoption in agriculture. The questions we want to answer are: How does an economy’s growth behavior and its structure change if technology is adopted from some technologically superior country instead of being created from scratch? Does convergence, a catch-up to income level and growth rate of this leading country take place? If yes, what determines extend and speed of this convergence? What effects do economic policies to increase technology adoption have? As before, we focus only on the agricultural sector, although similar questions can be asked about industry.
Thorsten Wichmann

6. Food Consumption and Economic Development

Abstract
The previous chapters have focused on the production of agricultural goods and have analyzed those in exogenous as well as in endogenous growth frameworks. In this chapter we focus on the consumption side, especially on the influence food demand and consumption can have on the development process. The produce of the agricultural sector is crucially different from most industrial output. Food is necessary to stay alive, and under- or malnutrition can considerably impair a human’s ability to work. While this may sound trivial and negligible from the point of view of an industrialized economy, such a relation can have important consequences for the development of an economy.
Thorsten Wichmann

7. Conclusions

Abstract
In this study we have combined the neoclassical model of a dual economy with methods and research topics from the New Growth Theory to study the consequences of agricultural productivity growth for a two-sector economy. This analysis has produced some interesting results for economic policies in developing countries as well as for growth and development theory. A considerable part of these results has been obtained by employing numerical techniques which so far have only rarely been used within the framework chosen here. In addition to providing information about the quantitative effects of economic policies, these techniques have freed us from the straight-jacket of steady-state analysis, at lease to a certain extend.
Thorsten Wichmann

8. References

Without Abstract
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Backmatter

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