AGRICULTURE AND ECONOMIC DEVELOPMENT

There can be no life without

agriculture.
Dilek AHN
1.INTRODUCTION
The concept of development can be defined as any kind of change
and development desired in a society in economic, social and political
areas (Tylolu & etepe, 2004: 29). Another definition is that
development is the change and renewal of the economic and socio-cultural
structure in an underdeveloped society, as well as the increase in per capita
income (Han & Kaya, 2008: 2). At the core of the concept of development
is a better life rather than economic performance. In this context, it is
among the basic measures of development that people have a longer life,
rather than an excess of income, have good education and health conditions
and be able to access these conditions easily.
While economic development is important for all countries, it is
more important for countries with low levels of development because these
countries can resolve the problems related to poverty, unemployment and
backwardness only through economic development. Besides, development
is necessary for developed countries to sustain the prevalent growth rates
(Sahin, 2017: 204). How economic development can be realized and what
role the agriculture sector plays in development efforts are among the
interests of economists. The agricultural sector has always been and will
continue to play an important role in the phenomenon of economic
development. The role of agriculture in economic development is
intimately linked to the level of development of the countries. While some
countries are trying to transfer resources from agriculture to industry,
others are support agriculture on the contrary and some others do not have
much expectation from agriculture in terms of development.
The agricultural sector is the most important sector of the economy
in the first stages of the development process in developing countries. The
agriculture sector has a great impact on the countrys population by
contributing to economic development through fulfilling many functions
such as meeting the demand of foodstuff, providing employment for a
significant part of the working population, generating input for the
industrial sector, creating demand for industrial products, influencing the
balance of payments and supporting industrial accumulation via relative
prices.
 This study deals with agriculture and economic development. In
this context, the contributions of the agricultural sector to the economic
development process have been mentioned. Then agricultural development
models are dealt with in the framework of Classical Models and Neo-
Classical Models. In these models, the economy indicates a dual structure.
A structural change has occoured in economy due to the shift in the labor
force from the agriculture sector to the industrial sector. Through this
structural change, growth in industry thanks to the transfer of agricultural
workforce, rationalization in agricultural production, productivity increase
in production factors, capital accumulation in agriculture and industry and
increase of savings are aimed.

2. THE ROLE OF AGRICULTURE IN ECONOMIC

DEVELOPMENT
The agricultural sector significantly contributes to the development process
due to its potential. Jonston and Mellor (1961) summarize the role of the
agricultural sector in economic development under the following headings
(Johnston & Mellor, 1961: 571-572):
While economic growth is defined as a significant increase in
demand for agricultural products, the fact that the supply of food is
not appropriately adjusted to the growth rate of demand can
seriously disrupt economic growth.
Increasing agricultural product exports can be one of the
important tools to increase revenue and foreign exchange earnings,
especially in the early stages of development.
Transfer of the labor required for manufacturing and other
expanding sectors of the economy can be made in the agricultural
sector.
As a dominant sector of an underdeveloped economy, agriculture
can make a net contribution to the capital needed for expansion of
the secondary industry and fixed investment costs.
Increasing the net cash income of the farmers community can be
an important catalyst for industrial expansion.

The contributions of the agriculture sector to the economy during the

development process can be said to be feeding the population, eliminating
imbalances in income distribution, providing raw materials and labor in the
industrial sector, providing foreign exchange inputs in the economy sector,
and creating markets for industrial goods and services.

2.1. The feeding of population

The most important reason why the agricultural sector is a critical
sector is concerned with the feeding of the population. Survival which is
the the most powerful impulse of mankind puts the nourishment needs to
the fore and therefore the agricultural sector gains a strategic importance as
a producer of foodstuff.
As the development process goes on, population growth and
urbanization accelerate, and demand for agricultural products grows.
Another factor that increases the demand for agricultural products is the
high elasticity of demand for food products in countries where
development is still at initial stages. In the first stages of economic
development, it is of utmost importance that the ability of agriculture to
fulfill the nutritional function of countries with a weak possibility of
having foreign exchange resources to import foreign agricultural products
(ahinz, 2011: 56).

2.2. Food safety

A second reason why the agricultural sector is an important sector
is to become self sufficient in terms of agricultural production and to have
enough food stocks for extraordinary situations such as war, drought,
famine. The wars, famines, droughts etc. that occurred in the past periods
led the countries to meet the food needs of the people living within their
borders through their own means. This approach, which is named as Self-
sufficiency in food, has become the main policy of states.
In fact, the problem of feeding the population can be solved by
importing food products instead of domestic production. However,
countries often do not want to be dependent on foreign states in terms of
agriculture considering the possibility of deterioration of relations between
human societies or countries and the tension between them sometimes
turning into war (Acar, 2006: 23). There is no opportunity to increase the
amount of land used in the production of foodstuff compulsory for human
beings. In todays conditions, it seems impossible to expand agricultural
land because the limit has been reached. For this reason, even if there is a
possibility to feed the population with the existing land assets, the ability to
feed the continuously increasing world population in the future makes it
necessary to increase productivity and quality in agriculture (Boz, 2004:
139).

2.3.Elimination of Income Distribution Imbalances

The productivity and income generating opportunities in the
agriculture sector are lower than in the industry and services sectors.
Because agriculture, which has a high level of hidden unemployment, is an
economic activity carried out mostly in the rural areas, people who depend
on agriculture for their livelihoods have low standards of living in terms of
development criteria. For this reason, people dealing with the agriculture
sector have a low share of the national income. This leads to deterioration
in income distribution, which in turn affects social peace and well-being
and leads to instability, which therefore makes the economy less efficient.
In order not to encounter such situations, it is necessary to ensure justice in
the distribution of income by ensuring that different sections of the society
receive a more balanced share of national income.
2.4. Supplying Raw Material and Labor to Industrial Sectors
One of the contributions of the agricultural sector to economic
development is to provide agricultural raw materials to the related
industries. Several primary agricultural products such as primary cereals
and legumes, fresh fruits, vegetables, oilseeds, animal products such as
meat and milk constitute the basic input of food processing industries. This
situation makes agriculture indispensable for the industrial sectors that
provide input from these sectors (Acar, 2008: 164). In addition, agro-based
industries are ultimately important for economies due to the added value
and employment opportunities they create and export revenues they
provide. The agriculture sector, which contains a significant portion of the
population, transfers part of the workforce out of agriculture due to the
development of non-agricultural activities, particularly in the industry, and
the increase in agricultural labor productivity. In other words, the labor
force to be obtained from agriculture in the first stages of development is
of great importance for the industrial sector.
In developing countries, the labor force in the agricultural sector
emerges in two ways. One of these is the natural population increase up to
2-3%. Deficiencies in population planning and the low level of education
of rural people prevent the rate of population growth in these countries
from being controlled. Another factor that leads to a surplus of labor in the
rural area is the mechanization in agriculture and the substitution of the
workforce by the machines. Although the use of machinery is limited in
some agricultural jobs, the increase in the use of machinery in many
processes such as tillage, sowing, fertilizing, irrigation, spraying,
harvesting, harvesting and storage makes the workforce employed in rural
areas unemployed, causing an agricultural labor force surplus Boz, 2004:
140).
2.5. Providing Foreign Currency Input for Economy
One of the contributions of the economy to the economy is foreign
exchange income. In todays globalizing world, all economies are in need
of foreign exchange in order to finance their imports and, if necessary, to
outsource their investments. Especially in the underdeveloped countries
where the industrial sector has not yet developed sufficiently and the
weight of the agricultural sector is still felt to some extent, a significant
part of the foreign exchange needs is met with agricultural product exports.
Advantages such as climate conditions and labor costs provide comparative
advantage for some developing countries in agricultural products. For
example, for countries with tropical climate characteristics fruits such as
kiwi, pineapple and banana are becoming an important source of income
(Acar, 2008: 164-165). Moreover, the tax on agricultural exports
contributes to the increase of public revenues by the increase of tax income
in addition to foreign exchange. The significance of these tax revenues is
more important for countries with a high share of agricultural products in
exports. Emerging countries exports are mostly agricultural and imports
are industrial goods. Import of industrial goods is required for the
development of industrial production. The foreign exchange necessary for
this is provided by the export of agriculture goods.
2.6. Creating Market for Industrial Goods and Services
Another important feature of the agricultural sector for the
countrys economies is the demand for goods and services produced by
sectors other than itself. The population dealing with agriculture is
creating demand for the industry and services sector to meet its basic needs
such as nutrition, clothing, and housing. Since agricultural products are
compulsory consumer goods, the demand for them will never end in the
rural area and urban area and will increase parallel to the population
growth rate. Due to the fact that it occupies a significant part of the
population and constitutes a significant part of the national income, the
demand for the agricultural sector is very important for the industries that
are developing and producing mainly for the domestic markets. However,
the agricultural sector needs inputs such as agricultural tools, machinery,
equipment, equipment and medicines manufactured by the industrial sector
in order to be able to carry out its productive activities. The agricultural
sector can be considered as the only consumer for these products,
especially since the export opportunities of industrial goods produced in
the country and used in agriculture in the first stages of development are
limited.
 2.7 Providing Capital Accumulation
In the first stages of industrialization, agriculture is an important
source of financing industrial investments. It can be argued that the
accumulation of capital in the sector will not occur if the level of income in
the agricultural sector is low and the consumption trend is considered high.
The most important characteristic of underdevelopment is that there is an
uneven distribution of income in the agricultural structure. The incomes of
big farmers are increasing rapidly in the first stages of industrialization,
with the increase in agricultural product prices due to urbanization and
income increase. Especially when the agricultural sector is not wholly or
partly taxed, a considerable amount of capital accumulates in this sector.
However, these funds are used for new land purchases, for purchasing land
or buildings in big cities, and a few are transferred to the industrial sector
(Han & Kaya, 2008: 222).

3. AGRICULTURAL DEVELOPMENT MODELS

It is possible to examine agricultural development models under
two categories as Classical and Neoclassical Models. In this section,
Classical, then Neoclassic Models are examined.
3.1.Classic Models
Within the scope of classical agricultural development models there
are Lewis Model and Fei-Ranis Model. Below is information about these
models.

3.1.1.Lewis Model
W. Arthur Lewis (1954) has brought economics to one of the basic
models of the relationship between agriculture and other sectors with his
study entitled Economic Development with Unlimited Supplies of Labor
. Lewis (1954) aimed to be able to solve the problems of distribution,
accumulation and development in a closed and open economy in the
framework of classical view. In the Lewis Model, there is a dual structure
in the economy as the subsistence sector (agricultural sector) and the
capitalist sector (industrial sector) (Lewis, 1954: 140-146). According to
Lewis (1954), underdeveloped countries have an unlimited workforce due
to the population surplus. For this reason, the marginal productivity of the
workforce in many sectors of the economy is negligible, zero, or negative
(Lewis, 1954: 141). On the basis of the Lewis Model, marginal
productivity of agricultural labor force is considered to be close to zero in
countries of large scale agriculture, and agricultural production is not
affected if the rural population is employed in non-agricultural production
areas. In fact, Lewis (1954) sees the agriculture sector as a sector that
provides labor supply.

Lewis emphasized that marginal productivity of labors being too low

or zero is not important for analysis, but the most important is that the
price of labor must be a fee at the subsistence level. At this level of wage,
the labor supply is unlimited as long as labor supply exceeds labor
demand. In this case, new industries may form, or old industries may
expand without limit to the current wage (Lewis, 1954: 142). The model
put forward by Lewis reveals the importance of increasing the income of
the capitalist class. Because as income level increases, more savings and
investments will be made. Profits for growth will accumulate in the
capitalist class, and the wages will grow at a certain level, so the amount
going to the national investment will increase. This means more production
and growth (Dlgerolu, 2003: 49). The basic assumptions of the Lewis
Model (1954) can be summarized as follows:
The supply of agricultural labor supply whose marginal
productivity is zero and which is infinitely flexible: The rural
population is quite large and labor supply is endless. In the
agricultural sector, real wages are stable and the marginal
productivity of the workforce is nearly zero. For this reason, the
total amount of production does not decrease if the labor force is
shifted from agriculture to industry at a certain amount.
Dual economic structure: The economies of countries consist of
two main sectors, which are agriculture and industry. The industrial
sector has a market mechanism that is highly developed, uses
modern technology, and where exchanges are made available under
appropriate conditions. The agricultural sector, on the other hand, is
quite low compared to the industrial sector. In addition,
development in the agricultural sector is largely dependent on rural
resources, and modern technologies in the sector are not yet used
adequately.
Infertility of agricultural production: The capital used in the
industrial sector is reproducible. In addition, capital gains will be
fairly high in a given period of time, since the capital has a high
turnover rate. However, land, which is the most basic capital of the
agricultural sector, is not reproducible and the supply of land is
limited. For this reason, agricultural production cannot be increased
continuously as in the industrial sector.
High productivity in the industry: The amount of products
produced per capita in the industry is considerably higher than that
of agriculture. The main reason for this can be that the technologies
 used in production are different and that the agricultural production
is carried out in a process depending on the soil and climate
conditions and that a certain time is required for each product.
Thus, there is no opportunity to increase the amount of crop per
capita by mass production in the short term in agriculture.
Difference in wage structure: While the wages in the industry are
determined according to the marginal productivity of the
workforce, there is no such situation in agriculture sector.
Since the marginal productivity of the workforce in agriculture is
close to zero or zero, agricultural wages are higher than marginal
productivity. There are a large number of workers to be transferred to the
agricultural industry sector, but their general and vocational education
levels are low. For this reason, migrant workers are not expected to be
productive in the industrial sector at first, but they have to become
qualified workers by first getting vocational training. This in turn makes
human capital investment necessary for agricultural workers to become
productive in the industry.

3.1.2.Fei-Ranis Model

Another model that claims economic development will take place

through the transfer from the agricultural sector to the industrial sector is
the one developed by Fei-Ranis (1961). Taking advantage of the ideas put
forward by W.A. Lewis, Fei-Ranis suggested that elimnating the surplus
of labor in the agricultural sector would provide new funds for
development. While the withdrawal of overworked labor can reduce costs,
it will not lower the production level. This will reduce hidden
unemployment in the agricultural sector and will result in an increase in the
amount of savings and investments as it will be distributed among a
smaller agricultural population (Dlgerolu, 2003: 55-56).
The Fei-Ranis Model (FR) consists of three phases. In the first
phase, which is similar to Lewis Model, it is assumed that there is a surplus
of labor force in agriculture sector, marginal productivity of additional
labor force is close to zero or zero, alternative cost of transfer of industrial
labor force is zero and infinite elasticity of labor supply in industry is and
current wage level is constant. As the investment amount in the industry
increases, additional workforce demands arise. Thus, the additional labor
force in the agricultural sector is transferred to the industrial sector. The
savings obtained are directed towards investment and the agricultural
industrial workforce is transferred in parallel with the growth achieved in
the agricultural sector. At this stage, until the transfer of labor from
agriculture reaches a certain level ,there is no reduction in total output,
while there is a decrease in total wage income as the marginal productivity
of the work force is zero at this stage.This means that there is no change in
the amount of production if a certain part of the workforce is removed from
work or shifted to another sector. In the second stage, the process in the
first stage ends with the elimaniton of the surplus of labor force in the
agricultural sector and the marginal product curve begins to rise. The fact
that wages tend to be higher than average products and marginal product
and the marginal productivity of labor force in the agricultural sector
makes it impossible to transfer the labor from the agricultural sector to the
industrial sector without reducing the total agricultural production. Under
these circumstances, labor transfer brings with it a certain alternative cost.
At this stage, the transfer will still occur if the drop in agricultural product
along with the transfer of labor is less than the wage gains to be earned in
the industry, or if the alternative cost is low.In the third stage, labor supply
in the industrial sector has reached a certain level. After this phase,
agricultural production will begin to decline in case of the transfer of labor
from the agricultural sector to the industrial sector. In addition, the amount
of additional agricultural products per worker in the industrial sector
declines and the food prices and industry labor supply curve starts to go up.
After this phase, it becomes difficult to find infinite number of agrarian
workers to be employed in the industrial sector with zero alternative cost
and it becomes necessary to increase the wages to attract these workers
into the industrial sector(Ranis & Fei, 1961: 534-545, Boz, 2004: 148-
151).
In the Fei-Ranis Model, among the factors determining the transfer
of industrial workforce from agriculture sector, there are population growth
rate, the adaptation of technological developments to agriculture, and
capital stock formation to provide investments in industry. Profit from the
industrial sector increases the marginal productivity of the capital stock
and capital and transforms into new investments, which increases the
demand for labor. The increase in the marginal productivity of the capital
thanks to the effect of technological developments also brings about wage
increases. The increase in wages slows the rate of economic growth after a
certain period of time. However, the use of new technologies in agriculture
and the conversion of savings into productive investments accelerate this
process (Boz, 2004: 150-151).
3.2. Neoclassic Models
Neoclassical agricultural development models include Jorgenson
Model and Kelley, Williamson and Cheetham (KWC) Model. Below is
information about these models.
3.2.1.Jorgenson Model
 In the Jorgenson Model, the countrys economy is composed of the
industrial sector having a high level of development and named as the
modern sector and the agricultural sector named as the traditional sector
(Jorgenson, 1967: 291). In the Jorgenson Model, unlike the Lewis and Fei-
Ranis models, no assumption was made that the marginal efficiency of the
workforce is zero. The assumptions of the Jorgenson Model (1967) can be
summarized as follows:
The amount of production in the agricultural sector is the function
of land and labor and the law of reduced yield in production is
valid.
In the industrial sector, the production amount is the function of
the labor force and the capital amount, and there is a constant return
in production,
Technological development in agriculture exhibits a neutral or
neutral tendency which does not lead to more capital or more labor
use,
There is a certain amount of capital stock in the industry sector.
In fact, this model suggests that because the wage level is relatively
high, the labor force in the agricultural sector will shift to the industrial
sector and thus the production in the industrial sector will increase. In order
for this to happen, a certain amount of capital stock must initially be found
in the industrial sector. The increase in capital accumulation by converting
capital stock into investment will depend on the amount of qualified labor
to be used and the trade between agriculture and industry.
3.2.2.Kelley, Williamson and Cheetham (KWC) Model

The KWC Model assumes that the economy is closed at first and
consists of agricultural and industrial sectors, a homogeneous commodity
is produced in each sector, the fixed return based on the scale is valid in
both sectors and the agriculture is labor intensive industry, while the
industry is the capital intensive sector. In economic growth, neither the
international trade nor the increase in demand for agricultural intermediate
goods is not included in the calculation. While the commodities produced
in the industry are consumed and invested, agricultural products are used
only for consumption and are not used as inputs for the industrial sector
(Boz, 2004: 153). The most important difference of the KWC Model,
which is also considered as an extension of the Jorgenson Model, is that
the capital is included in the scope of the agricultural production function.
Technological development in this model is the external variable. In each
sector, the technological progress rate is the weighted average of the rate of
substitution between factors, which is equal to the output elasticities of
capital and labor. Factor demand is calculated by taking into consideration
labor wages, capital leasing cost and marginal productivity of factors and it
is accepted that the increase rate of labor supply in industrial sector will be
relatively higher than in agriculture sector (Acar, 2008: 175).
4. GENERAL EVALUATION OF MODELS

The dual economic models which classify two basic sectors of economy as
agriculture and industry are used to explain the economic development in
developing countries, where agriculture is especially important in the
countrys economy. However, there is much criticism directed at the
models. For example, in the Lewis Model, the marginal productivity of the
surplus workforce is assumed to be zero in the agricultural sector and
changes regarding the use of technology are not taken into consideration.
However, in many studies, it has been shown that the marginal
productivity of the workforce used in the production of additional products
in the agricultural sector, as accepted both in the Lewis Model and in the
first stages of the FR model, is not zero. Also, as in the Lewis and FR
model, the expectation that the accumulation of capital in the industrial
sector will create employment at the same rate may not be realized. If
capital is used in technology development and substitutes labor, the labor
demand of the industrial sector from the agricultural sector will not be as
fast as predicted in the models. In FR and Jorgenson Models, the
employment of surplus labor force in agriculture sector in the industry,
capital accumulation rate in industry, technological advances, population
growth rate depend on trade amount between agriculture and industry
sector. In most of dual economic models, most economies are assumed to
be closed. However, in todays conditions, a country without foreign trade
is unthinkable. For this reason, the lack of foreign trade in economic
development is regarded as a common lack of models. Again, the fact that
models divide economies into two sectors as agriculture and industry, is
considered yet another deficiency. Although these two sectors have a very
important place in developing countries, the role of the service sector in
economies is finally crucial (Boz, 2004: 156-157).

5. CONCLUSION
In this study, the importance of agriculture in economic
development is mentioned. Even if the share of agriculture in the national
income of the countries shows a constant decline, the critical position and
importance of agriculture is maintained in the countrys economy due to
the fact that it is the main sector in which the necessities for the
continuation of the human generation are produced. The agricultural sector
has a large number of contributions to the economy. These contributions
include population growth, food security, elimination of imbalances in
income distribution, provision of raw materials and labor to the industrial
sector, provision of foreign currency reserves in the economy, creation of
markets for industrial goods and services, and provision of capital
accumulation. Among the models that address the contribution of the
agricultural sector to economic development, there are Lewis, Fe-Ranis,
Jorgenson, Kelley-Williamson and Cheetham Models. In these models, it is
stated that the economy is a dual structure and that the structural change
caused by the worker transferred from the agricultural sector to the
industrial sector will provide growth in the industry, rationalization in
agricultural production, productivity increase in the production factors,
accumulation of capital and savings in agriculture and industry.

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