agec 340 -- international economic development course slides for week 5 (feb . 9 & 11)
DESCRIPTION
AGEC 340 -- International Economic Development Course slides for Week 5 (Feb . 9 & 11) . Reminder: Project topic & sources must be uploaded by 5 pm Thurs. Topic is a title plus one-paragraph description Sources is at least 10 biliographic citations Assignment will be graded on: - PowerPoint PPT PresentationTRANSCRIPT
AGEC 340 -- International Economic Development Course slides for Week 5 (Feb. 9 & 11)
Reminder: Project topic & sources must be uploaded by 5 pm Thurs.
– Topic is a title plus one-paragraph description – Sources is at least 10 biliographic citations– Assignment will be graded on:
the match between topic and sources the quality of presentation
remove your name and any identifying information from the page provide a meaningful title and a clear, complete paragraph describing
your topic find important sources, and format the bibliography carefully!
total is out of 50 points (=two quizzes or exercises)
Structural transformation & economic growth*
As incomes rise, what happens to economic “structure”? will look at three aspects of the structural transformation:(1) Agriculture, industry and services as a share of income,
employment and spending(2) The earnings gap between farmers and nonfarm workers(3) The number of farmers and “industrialization” within
agricultureThere are big surprises ahead in each of these!
* If you’re following the textbook, this is in chapter 5, pp. 81-86 .
Agriculture’s share of national income
Our textbook picture of structural transformation
Agriculture’s share of employment
Another textbook picture of the transformation:
Food’s share of total expenditure
A third textbook picture:
Source: Reprinted from T.P. Tomich. P. Kilby and B.F. Johnston, 1995. Transforming Traditional Agriculture. Ithaca, NY: Cornell University Press.
Share of output from agriculture and mining in eight high-income countries, 1860-1960
Over time, in the history of rich countries:
What happens next?Does the share fall to zero?
Among developing countries today, the same pattern but each country’s path varies:
Source: Reprinted from World Bank, World Development Report 2008. Washington, DC: The World Bank (www.worldbank.org/wdr2008)
Source: Reprinted from T.P. Tomich. P. Kilby and B.F. Johnston, 1995. Transforming Traditional Agriculture. Ithaca, NY: Cornell University Press.
Share of output from industry in eight high-income countries, 1860-1960
Getting richer involves industrialization
…but what happens
next to industry’s
share?
Over the full span of development, employment shifts to services
Source: U.S. Economic Report of the President 2007 (www.gpoaccess.gov/eop)
Percent of workforce by sector in the United States, 1800-2005
in 1800, employment was 90% farming
today, about 80% of jobs are in services
in 1930s-70s, industry
reached about
40%agricultural employment has stabilized
Another example of structural transformation over the long run…
Percent of GDP by sector in Australia, 1901-2000
Source: Government of Australia (2001), Economic Roundup – Centenary Edition, Department of the Treasury, Canberra.
Some conclusions on structural transformationas a share of the economy
• As incomes rise, the farm sector declines as a share of employment, income & expenditure–The share of industry rises and then falls–The share of services rises–The share of agriculture eventually stabilizes
• What happens to the earnings gap between farmers and nonfarmers?
Agricultural Employment as a Share of Civilian Employment and Real Farm Output as a Share of Real GDP
SOURCE: U.S. Department of Commerce and the Federal Reserve Bank of St. Louis. Reprinted from K.L. Kliesen and W. Poole, 2000. "Agriculture Outcomes and Monetary Policy Actions: Kissin' Cousins?" Federal Reserve Bank of Sf. Louis Review 82 (3): 1-12.
Farm employment and earnings in the United States, 1889-2000
Until the 1930s, employment and output fell together
…then employment fell much faster than output
and then both stopped falling
The US farm-nonfarm earnings gap, 1910-2000
Source: BL Gardner, 2000. “Economic Growth and Low Incomes in Agriculture.” AJAE 82(5): 1059-1074.
Thou
sand
s of
199
2 do
llars
per
farm
Perc
ent
of n
on-f
arm
inco
me
Farm income fell…
then caught up
Structural transformation and the earnings gap across countries
-1
-.50
.51
4 6 8 10 12LNGDPpc (Constant US$-2000)
Agri. GDP Share (LCU) Agri. Employment ShareAgri. GDP Share (LCU)minusAgri. Employment Share
Source: Peter Timmer, “Agricultural Trade Policy during Structural Transformation.” Mimeo, Stanford Univ., Dec. 2007.
The gap may worsen as incomes rise, then farmers catch up
The farm-nonfarm earnings gap in 86 countries, 1965-2000
Structural transformation: the story so far…
(1) Farming declines as a fraction of the economy, as industry and services grow
(2) Farmers’ incomes decline relative to other workers, but then catch up –in the U.S., farmers’ incomes began to catch up in 1933 farmers’ incomes passed non-farmers in 1990s
(3) What happens within agriculture?
Does total world agricultural output decline?
Source: Reprinted from FAO, State of Food and Agriculture 2007. Rome: FAO (www.fao.org)
The structural transformation in world trade:Agriculture’s share fell while its value rose
Source: Reprinted from FAO, State of Food and Agriculture 2007. Rome: FAO (www.fao.org)
US GDP from Farm and Nonfarm Businesses, 1929-2004(Billions of 2000 US dollars)
0
10
20
30
40
50
60
70
80
90
100
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Farm value added (left scale)
Non-farm businesses value added (right scale)
Source: U.S. Bureau of Economic Analysis, Table 1.3.6 <www.bea.doc.gov>.
Farm
val
ue a
dded
(200
0 US
$ b.
)
Non-
farm
bus
iness
(200
0 US
$ b.
)
Does U.S. agricultural output decline?
Farm output and agricultural exports in the United States, 1945-2006
120
140
160
180
200
220
240
260
280
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 0
20
40
60
80
100
120
140
160
Farm market receipts (2000 US$ b.) [left scale]Agric. exports (2000 US$ b.) [right scale]
Source: Farm receipts are from US Economic Report of the President 2007 (w w w .gpoaccess.gov/eop), Table B-97; exports are from USDA, Foreign Agricultural Trade of the United States (w w w .ers.usda.gov/Data/FATUS). Both converted to constant dollars using GDP deflator.
Source: Farm receipts are from US Economic Report of the President 2007 (www.gpoaccess.gov/eop), Table B-97; exports are from USDA, Economic Research Service (www.ers.usda.gov/Data/FATUS). Both are converted to constant dollars using GDP deflator from Bureau of Economic Analysis (www.bea.gov).
What happens to increases in U.S. output?
≈12-25% exported
≈25-30% exported
The bulk commodity business fluctuates, while value-added exports grow
Fig. 1.3 U.S. Agricultural Exports by Category, 1970-2004(billions of U.S. dollars)
0
5
10
15
20
25
30
35 Bulk
Intermediate
Consumer-Oriented
Source: USDA, Economic Research Service, Foreign Agricultural Trade of the United States (www.ers.usda.gov/Data/FATUS).
Within agriculture, the structural transformationbrings specialization for inputs and marketing
Source: Reprinted from World Bank, World Development Report 2008. Washington, DC: The World Bank (www.worldbank.org/wdr2008)
The stylized facts of structural transformation
(1) Farming declines as a fraction of the economy, as industry and services grow
(2) Farmers’ incomes decline relative to other workers, but then catch up
(3) Within agriculture, row-crop production fluctuates while agroprocessing and agribusiness grows
… but what drives this change? what explains it?
Explaining Structural Transformation
Can consumers’ income growth explain the shift?–Engel’s law
As income grows, demand increases less for food and ag. products than for other things
The income-consumption curve for food is relatively flat Income elasticity of demand for food < 1
–Bennett’s law As income grows, demand increases least for basic staples and
rises for higher value foods The income-consumption curve for staples is very flat Income elasticity of demand for staples ≈ 0
Explaining Structural TransformationCan new technology explain the shift?
–New farm technology: “Cochrane’s Treadmill” New farm technologies that increase output might lower
prices and “push” farmers out The demand curve for food is relatively steep
Food demand is price-inelastic: Price elasticity for food < 1 in absolute value
–Non-farm technology: bright lights, big city New nonfarm technologies that create opportunities might
“pull” farmers into nonfarm workThe demand curve for non-food is relatively flat
Non-food demand is price-elastic Price elasticity for nonfood >1 in abs. value
Limited land area may matter most of all:–Because total land area is fixed,
farmers’ savings and investment eventually runs out of on-farm uses, and is applied to other uses
farmers’ earnings are linked to the number of farmers, acres per farmer and earnings per acre
Explaining Structural Transformation
Farmland area and the number of farmers
Source: W.E. Huffman and R.E. Evenson, 2001. "Structural and productivity change in US agriculture, 1950-82." Agric. Economics 24: 127-147, extended with more recent data from the US Economic Report of the President.
Use of land and labor on U.S. farms, 1910-2000
Inde
x va
lue,
194
8=10
0
Source: Reprinted from T.P. Tomich. P. Kilby and B.F. Johnston, 1995. Transforming Traditional Agriculture. Ithaca, NY: Cornell University Press.
During structural transformation, the numberof farmers rises, then falls, and finally stabilizes
The number of farmers rises then falls… until farmers’ incomes catch up to nonfarm earnings
Figure 5-3. Number and average size of farms in the United States, 1900-2002.
Our textbook picture of structural transformation within agriculture:
farm numbers stabilized byoff-farm income and rising profits per acre;latest census shows slight rise in no. of farms
In the world as a whole, the number of farmers has just peaked and will soon decline
Regions differ sharply in their population growth rates
Source: Calculated from FAOStat data (www.fao.org).
Cities are growing much faster than total population
Source: Calculated from FAOStat data (www.fao.org).
…but cities are still too small to absorb all population growth, especially in S. Asia and Africa
Source: Calculated from FAOStat; chart reprinted from W.A. Masters, 2005. “Paying for Prosperity: How and Why to Invest in Agricultural R&D in Africa.” Journal of International Affairs 58(2): 35-64.
Conclusions on economic growth and structural transformation
As incomes grow…(1) Farming declines as a fraction of the economy
• in favor of industry and services • even within agriculture
(2) Farmers’ incomes at first decline relative to others• but then farm incomes catch up • eventually farmer incomes pass nonfarmers’ incomes
(3) The number of farmers first rises and then falls• speed depends on both population and income growth• eventually the number of farmers stabilizes