Modernization of agriculture and long-term growth

• Published in: Journal of monetary economics 2013-04, Vol.60 (3), p.367-382
• Main Authors: Yang, Dennis Tao, Zhu, Xiaodong
• Format: Article
• Language: English
• Subjects: Agricultural economics; Agricultural industry; Agriculture; Economic models; Economic theory; England; Historical analysis; Industrial development; Modernization; Monetary economics; Per capita; Per capita income; Studies; Technology adoption; United Kingdom
• ISSN: 0304-3932; 1873-1295
• DOI: 10.1016/j.jmoneco.2013.01.002

This paper develops a two-sector model that illuminates the role played by agricultural modernization in the transition from stagnation to growth. When agriculture relies on traditional technology, industrial development reduces the relative price of industrial products, but has a limited effect on per capita income because most labor has to remain in farming. Growth is not sustainable until this relative price drops below a certain threshold, thus inducing farmers to adopt modern technology that employs industry-supplied inputs. Once agricultural modernization begins, per capita income emerges from stasis and accelerates toward modern growth. Our calibrated model is largely consistent with the set of historical data we have compiled on the English economy, accounting well for the growth experience of England encompassing the Industrial Revolution. ► We develop a two-sector model of transition from stagnation to growth. ► In our model the modernization of agriculture is an endogenous result of productivity growth outside the agricultural sector. ► From various sources of historical data, we document several important facts about the transition in England around 1800. ► The predictions of our calibrated model are largely consistent the facts.