Department of Agricultural, Food, and Resource Economics Feed the Future Innovation Lab for Food Security Policy

Barrett, C., Reardon, T., Swinnen, J., & Zilberman, D. (2019). Structural transformation and economic development: insights from the agri-food value chain revolution. Working paper, Dyson School of Applied Economics and Management, Cornell University.

Abstract

One key empirical regularity of the economic development process involves the structural transformation from a low-income economy in which low productivity agriculture employs most workers and generates most output, to a higher-income, more industrialized, service-oriented and diversified economy with a far more productive, but relatively much smaller agricultural sector (Timmer 1988, 2002, 2009). During this transformation agriculture releases labor to work in other sectors, provides plentiful raw materials for secondary processing and manufacturing, and farmer income growth stimulates demand for non-food goods, especially non-tradables that generate especially big local multiplier effects (Mellor 2017). This pattern is strongly associated with economic growth, poverty reduction, urbanization, and increasingly efficient spatial integration of factor (eg, financial and labor) and output (eg, food) markets. The bidirectional linkages between rural agricultural and urban industrial economies have long been recognized as essential to structural transformation (Lewis 1954; Johnston and Mellor 1961). Indeed, the Nobel Laureate W. Arthur Lewis famously wrote:“industrial and agrarian revolutions always go together, and… economies in which agriculture is stagnant do not show industrial development”(Lewis 1954, p. 433).