Classic economic theory posits that being richly endowed with good quality arable land will retard an economy’s transformation to higher value added industrial activity.
Just as diamonds, gold and oil have cursed economies some have suggested agricultural land might be as much of a problem. Until the paper highlighted this week however nobody had conclusively proved the theory.
Justin Yifu Lin, Wei You and Haochen Zhang from the Peking University have used China to study as the economy only begun to transform rapidly in recent years. In 1990 33% of the workforce were engaged in manufacturing but by 2010 that figure had risen to 57%.
As this is a summary I’ll spare the detail but what the paper points out, with reference to China and 33 other countries studied using the same methodology, is agriculture is a curse when opportunities (in this case trade liberalization) to move up the value added curve present themselves.
The implication is that China could have achieved faster development if it had proactively assisted in the relocation of labor from farm to factory. As most are aware it maintains a strategic ambiguity in this regard urging the move but maintaining the hukou system that denies rural workers urban social security benefits when they relocate.
I’d add that in recent years the countryside has become even more inviting as China has forced up agricultural commodity prices to close to global levels for many products giving the rural population even greater incentives to stay put.
Not in the paper’s purview but an obvious implication is that the hukou system, which acts as a brake presently on migration and prevents urban areas being swamped with hayseeds, must at some stage be reformed if urbanization is to continue.
You can access the paper in full via the following link Does Agricultural Endowment Impede Structural Transformation?
Happy Sunday.