Development Priorities: The Relative Benefits of Agricultural Growth

Abstract

Should agriculture or non-agriculture be a priority for development? We revisit this longstanding and intractable question using a two-sector, three-factor dynamic model with an asymptotic balanced growth path. The model allows a forward-looking assessment of development priorities based on lifetime welfare. A comparison of sector-specific productivity gains indicates that gains in non-agriculture are often more valuable, even when agriculture is initially the largest sector in terms of employment. We discuss the robustness of this result, including the roles of capital intensity, the discount rate, and taxes on profits in influencing the rates of investment and structural transformation.

Keywords: structural transformation, agriculture, development policies, investment

JEL Classification: O40