The issue of which sector should lead economic growth of poor countries has been controversial since R. Nurske (1953) made a case for balanced growth among sectors and A. Hirshman (1958) rebutted the argument by making the countercase for unbalanced growth. The lesson of the standard model is that public policy must not be fragmented, but, realistically, not all elements of the standard model can be pursued simultaneously. The general rule is to allocate resources and achieve growth in services and sectors offering the highest social returns on resources. Priorities for the public sector in poor countries are policy reform, agricultural technology development/transfer and adoption, elementary schooling, and infrastructure (Tweeten and McClelland, 1997). An important and challenging role for government is to gather and apply information to properly sequence public investments as the nation progresses through its various phases of growth.
In regard to sectors, international competition suggests that returns will be highest in sectors with a comparative advantage. Rather than arguing over which sector comes first, a wise approach is to view growth in the farm and nonfarm sectors as synergistic — each sector benefits from the other.
To be sure, the process of development in poor, food-insecure countries having agriculture as their economic base cannot begin in earnest without improvements in agricultural productivity. That productivity provides a surplus of output and earnings over needs that can be invested in high-return human capital, infrastructure, and agricultural research. The labor-saving and output-increasing improved capital inputs supplied to farms by the nonfarm sector free labor from farming. Investments by farmers in human capital are transferred to the nonfarm sector, thus raising the quantity and quality of industrial output and standards of living. Improvements in agriculture and industry are simultaneous.
This iterative process continues until human and material resources accumulate to support labor-intensive manufacturing and, eventually, high-paying service industries. That development process takes many years and much patience. The journey is aborted before it starts when governments neglect the first step — investment in agriculture — as T.W. Schultz (1964) perceptively noted four decades ago.
Pinstrup-Andersen (2002) highlights how little has changed, observing recently that developing countries devote only 7.5% of government expenditures to agriculture, although on average they derive three-fifths of their GDP from agriculture. Sub-Saharan Africa on average devotes only 0.5% of its agricultural GDP to agricultural research, compared to the United States, which devotes 3% of its agricultural GDP to agricultural research.
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