Section IX examines the implications of rapid capital formation for the economy in general and for the agricultural sector in particular. Section X points out the reasons why agricultural investment may tend to be secularly neglected.
The Appendix to the paper draws attention to certain points of view current in India which influenced the First and the Second Five Year Plans.
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Authors Authors and affiliations P. This process is experimental and the keywords may be updated as the learning algorithm improves. This is a preview of subscription content, log in to check access. Google Scholar. Brahmananda 1 1. Does higher farm productivity reduce the rural demand for labour, or do farmers provide an important source of demand and capital to industrialists? Counties suited to cash crops benefitted more from reforms, and enjoyed faster growth in agricultural output.
Part of this increase in agricultural output was saved, increasing the supply of capital to local non-state firms and stimulating the growth of the non-agricultural sector.
There were positive linkages from agriculture to industry in early reform-era China. At this time, Chinese agricultural productivity was low, and most farmers faced binding subsistence constraints. Prevented from importing food from elsewhere, even farmers with land highly suitable for growing cotton or oilseeds the main cash crops in China had to specialise in grain production to avoid starvation.
There were also political incentives to produce grain, and most farmers faced quotas for grain deliveries to the central government.
By relaxing these policies, the reforms effectively liberalised the planting of cash crops. Underlying measure is continuous but has been grouped into Jenks categories for readability.
The first part of my analysis demonstrates that counties suited to cash crops did benefit from the freedom to plant these crops. I use pre-reform prices and a global database of theoretical crop yields to identify counties that were endowed with land more suited for cash crops than grains.
Then I trace the growth of agricultural output for non-metropolitan counties over forty years. Suitability for cash crops does not predict growth pre-reform. However, after the reforms, counties began to specialise in cash crops if they were suited to them, and enjoyed significantly faster growth in aggregate agricultural output.
I then turn to whether this increase in agricultural productivity led to higher non-agricultural output. The setting of my study, China, helps me explore the link between the sectors in two ways. First, in the early s, China was poor and the agricultural sector was relatively large.
A large agricultural sector and underdeveloped industrial sector will tend to make linkages from agriculture to the rest of the economy more important. As a result, counties suited to cash crops also enjoyed a relative increase in manufacturing and service-sector output after the reforms they were growing at the same rate before. Counties suited to cash crops also had faster post-reform growth in savings and investment.
These results indicate that there were forward linkages, but they do not indicate why there were linkages. I consider the possibility of linkages through three classic channels. First, growing cash crops could be less labour-intensive than grains, which would free up labour for manufacturing and services. Second, richer farmers could purchase more manufactures and services, driving up demand for these goods. Third, richer farmers could save more, providing capital for local firms.
My main results — that agricultural productivity led to higher savings, investment, and non-agricultural output — are consistent with any of these channels. Other outcomes are more revealing:. Put together, these additional results indicate that the observed linkages from agriculture to the rest of the economy were primarily due to rural saving increasing the supply of capital to local firms. This article is published in collaboration with VoxEU.
Publication does not imply endorsement of views by the World Economic Forum. To keep up with Forum:Agenda subscribe to our weekly newsletter. Image: A farmer waters her vegetable fields near a petrochemical plant in Anqing, Anhui province May 30, The views expressed in this article are those of the author alone and not the World Economic Forum. US consumer prices have risen to their highest rate since , with consumer prices up 6.
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