Agriculture has historically played a central role in the development process of nations. In early stages of industrialization, growth in agricultural productivity releases labor for emerging manufacturing while providing food, raw materials and demand for fledgling industries. However, agriculture’s importance in both output and employment steadily declines as industrial and service sectors expand. Yet even as economies mature, agriculture remains crucial for poverty reduction, food security and inclusive rural livelihoods.
This section examines agriculture’s evolving place in the process of economic development and structural transformation. It analyzes key linkages between agricultural modernization, rural development and overall growth across successive stages of development. Core policy priorities include raising smallholder productivity, building market linkages, spurring rural non-farm enterprises and improving livelihood resilience.
Agriculture in Early Development
In the early take-off period of industrialization, agriculture plays vital economic roles. Growth in agricultural productivity is critical for supplying affordable food to urban factory workers and raw materials to industry. Rising farm incomes generate demand for simple consumer goods produced by infant industries in a circular growth process (Johnston & Mellor, 1961; Adelman, 1984). As labor productivity rises in agriculture, surplus rural workers migrate to cities to staff manufacturing expansion.
Historically, public investments in rural infrastructure, agricultural R&D, extension services and access to credit and inputs like fertilizers were crucial to enable intensification from traditional low-yielding farming to commercial agriculture. The Green Revolution demonstrating major yield gains from high-yielding varieties, irrigation and inputs in India, Indonesia and other developing countries from the 1960s showed how technological upgrading could transform agriculture (Evenson & Gollin, 2003). Where land was highly unequal, redistributive reforms also contributed to productivity growth by reallocating land to more efficient smallholders, as in Japan, South Korea and Taiwan (Hayami & Godo, 2005).
As incomes rise with agricultural commercialization, farming households’ expenditure on local goods and services creates growth linkages for the rural non-farm economy and small towns. Mellor (1976) highlighted the growth linkage effects generated by agricultural productivity gains and higher rural incomes. Empirical research confirms strong multiplier effects of agriculture on non-farm development and overall growth in developing countries (Haggblade et al., 2007), though magnitudes depend on context.
The Agricultural Transformation
As development proceeds, agriculture’s share of economic output and employment steadily falls. The well-known patterns of structural transformation were documented by Kuznets (1966) and Chenery and Syrquin (1975) using historical data across countries. Labour and resources shift from rural farm activities toward urban industry and services which offer higher productivity and incomes. The agricultural transformation is driven by faster productivity growth in non-agriculture, as well as higher income elasticity of demand for manufactured goods and services compared to basic foods.
Quantitative evidence shows that in the poorest low-income countries agriculture typically comprises around 25% of GDP and 60% of employment. By lower-middle income, agriculture’s GDP share falls to around 12% and employment share to 40%. In upper-middle income countries, typical agriculture shares are 8% of GDP and 25% of jobs, reaching only 2-3% in high-income economies. The speed and patterns of structural change vary across countries depending on policies, institutions and resource endowments. Rapid industrialization in some East Asian countries was facilitated by substantial food crop productivity gains from the Green Revolution and reforms allocating land to productive farmers (World Bank, 2008).
Sustaining Inclusive Growth
Despite its declining economic weight, agriculture remains crucial for inclusive growth and poverty reduction. Most of the world’s extreme poor live in rural areas and depend directly or indirectly on agriculture for incomes. Cross-country studies confirm agriculture has powerful impacts on poverty alleviation compared to growth in other sectors (Christiaensen et al., 2011). Farm productivity gains drove much East Asian poverty reduction. In India, faster agricultural wage growth compared to other sectors in the 2000s was an important factor enabling national poverty reduction (Datt & Ravallion, 2011).
But diversification is essential as fragmented smallholder plots provide low earnings. Facilitating commercialization and off-farm opportunities is imperative to sustain incomes. Rural investments in roads, electricity, education and internet connectivity integrate communities into the broader economy. Building market linkages, improving smallholder access to finance, technology and skills, and reducing gender gaps can enhance agricultural productivity and commercialization. Supporting rural small and medium enterprises in processing, services and handicrafts provides pathways out of poverty (Lanjouw & Lanjouw, 2001). Social protection schemes like India’s rural employment guarantee help stabilize vulnerable livelihoods. As agriculture transforms, policies must ensure its continued crucial roles in food security, poverty alleviation and inclusive development.
Conclusion
Throughout successive stages of development, investing in agricultural advancement remains vital to fuel overall economic growth and improve social welfare. Agriculture powers initial industrialization, while transfers of labor and resources to modern sectors raise productivity over time. But rising agricultural productivity and commercialization with strong rural economy linkages remain key pathways out of rural poverty. Although its economic weight declines, vital roles of agriculture endure in ending hunger, malnutrition and destitution through sustainable rural livelihoods and just transitions to emerging economic opportunities. Holistic policy approaches recognizing these multifaceted contributions can enable agriculture to equitably transform economies.
References
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