Agricultural development patterns

Abstract

A two-sector general equilibrium model of economic growth has been developed in conjunction with a political economy model of agricultural pricing policies. These theoretical models were used to both present arguments regarding the impact of economic and political forces on agriculture's share of GDP, as well as to provide guides towards specifying the econometric models. Empirical analysis was performed using two data sets. The first covered 81 countries for the years 1971-1981, but contained no explicit measure of policy. The second covered 22 countries for the years 1985-1989, and contained an explicit policy measure in the form of producer subsidy equivalents. Due to the lack of a policy measure in the large data set, a reduced form equation for agriculture's share had to be solved for in order to yield an operational statistical model. Results from this model indicated that variations in agriculture's share could be explained by: level of development, world prices, natural resources, and the political economy variables. For the smaller data set, agriculture's share and producer subsidy equivalents were considered to be jointly endogenous, and so were estimated as a system. It was found that agriculture's share has a negative effect on producer subsidy equivalents, however, producer subsidy equivalents did not have a statistically significant effect on agriculture's share.