The Importance of Agriculture
The contribution of the agricultural sector not only
provide incremental markets for new products manufactured
in the industrial sector, it also has contribution on
increasing the supply of food and new material to other
sectors, tax revenue to the government to provide
"investable surplus" to other expending sectors and to
provide foreign exchange. The first contribution of
agricultural sector is to provide sufficient food for the
labors in the industrial sector. From Lewis's balanced
growth model, we know that if supply of good to the modern
sector cannot catch up with the demand of food in the
modern sector, the modern sector has to spend a large
amount of money to import food to feed the labors and have
reduce the accumulation of capital. As indicated by J.
Mellow: " It is in practice and in concept that it is
possible for the agricultural sector to provide new
productivity!" The agricultural sector also provide
"investable surplus" and tax revenue to other expending
sectors. The excess supply of labors in the LDCs reduce the
bargaining power of the labors. As a result, their wages
are assumed to be constant. As labors shift to modern
sectors from agri. sector, the productivity of the agri.
sector will increase(MPL increase). There will have some
surplus and the landlord will use these surplus to reinvest
to the agri. sector, drive up the MPL further. In this
case, the TPPL will increase, with given number of labor,
the productivity increase due to new equipment, the surplus
further increase and the landlord will further expend their
investment. Another contribution is tax revenue. The
increasing productivity of agri. sector provide resources
to other sectors. If the resources are used productively,
the effect can be accerlated! The new resources refer to
supply of labor, new material and food. The increase
production of food not only to feed the labor in modern
sector and also to feed the high growth rate of population.
The demand of food can be defined as below: D = P + nG D:
the rate of demand of food
P: rate of population growth
G: rate of real income growth
n: income elasticity of demand for agri. product Refer to
Mellow, the income elasticity of demand on agri. product is
high (0.6 or higher) in LDCs when compare with
HDCs(0.2-0.3). Therefore, as labor shift to modern sector
and income increase which give rise to higher demand for
the agri. products, and labors of the agri. sector increase
, more land will be free out and tax revenue pay to the
government. An example is in Japan, in last 2 decades,
Japanese government received 80% of their revenue from land
and from the direct production income tax, it is about
12-22% from agri. sector and only 2-3% in non-agri. sector.
The increase in government revenue can help the government
to increase investment in SOC and improve educational level
and impose other programs to help the economic growth.
Another contribution is to increase the incremental markets
for new products manufactured in industrial sector. As the
real income of labor in agri. sector increase, they can
spend more on consumption good and provide a market for the
industrial sector. The last contribution of agri. sector is
the supply of foreign exchange. It is clear that increase
export of primary products is the first stage of the LDCs.
As the productivity of agri. sector increase, excess
products will be exported to earn more foreign exchange.
Since in the first stage, the output of industrial sector
is small and the quality is not good due to lack of new
tech. and equipment. Therefore, the nation has to rely
solely on exporting agri. sector. The earning of foreign
exchange can provide the government fund to invest in SOC
and purchase new equipment for modern sector. To conclude,
agri. sector is very important to the growth of economic.
In most of LDCs, the government only concentrate on
expanding industrial sector and neglect the agri. sector.
And it generated many problems like lack of foreign
exchange, lack of food supply. Therefore, The LDCs should
put equal weight to both sectors.