5η και 6η παρουσίαση Models of Growth Patterns

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2
 The Growth Model of Adam Smith

• Increase in specialization: Sudden changes in institutions, transportation, human knowledge lead to

new gains from exchange through comparative advantage and increasing returns to scale.
• Increase in level of specialization: Total learning by doing and R&D efforts increase, and cause the
rate of change of technology to increase.

Output
per capita

e
E

D d

c
C

B b
A

0 1 2 Time

Smith was inherently optimistic: economic growth continues forever, likely even to increase as specialization
becomes even greater.

At time 0 per capita income is at A, the result of previous increases in specialization and innovation.
Increases in the level of specialization puts the economy on the growth path Ab, and it reaches per capita
income B in time 1. However, a sudden innovation (technological change) leads to an increase in
specialization, which raises per capita income to C. Growth occurs again along path cd, but the rate of growth
is more rapid at the new level of specialization. Process is repeated at time 2 and so forth.

The gains from trade and growth

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• Static gains: accrue from international specialization according to the doctrine of comparative
advantage (Ricardo and Heckscher-Ohlin).
• Dynamic gains: accrue from the impact of trade on production possibilities at large, e.g. economies
of scale, international investment and the transmission of technological innovation (modern trade theory).
• Vent for surplus: trade can also provide a “vent for surplus commodities” for resources (e.g. land and
labor) that are otherwise unemployed (Adam Smith).
– increased imported goods (capital) for which there are no domestic substitutes or which are more
productive than domestic resources.
 May explain the history of the international trade of the developing countries, which until very
recently has been a history of the “opening up” of the trade in primary products with long-run consequences
for growth and development.

In essence, vent for surplus is a particularly type of dynamic gains from trade that is related to a particular
economic situation: an endowment of unemployed resources.

Modern staples and “vent for surplus” theories

• “Staples thesis“: the development of many countries and regions has been led by the expansion of
export
sectors, and in particular, natural resource exports (Canadian and US economic historians).
– Explains the very substantial inflows of capital and labor into the "regions of recent settlement", i.e.
largely unpopulated land and resource frontiers of Canada, the United States, Argentina and Australia,
that occurred largely in the nineteenth and early twentieth centuries.
• “Vent for surplus”: The classical vent-for-surplus theory of trade is a much more plausible
explanation of
the start of trade in hitherto "isolated" country or region with a "sparse population in relation to its natural
resources" such as "the underdeveloped countries of Southeast Asia, Latin America and Africa when they
were opened up to international trade in the nineteenth century" (Myint).
• Both theories: The stimulus to development comes from rising prices and expanding markets in the
world
economy that leads to an extension of the land and resource frontier internally, accompanied by substantial
inflows of foreign capital and labor immigration, either from outside the country or from another region from
within the country.

Conclusion on vent-for-surplus/staples theories

• The trade gain is a “dynamic” gain resulting from a movement from a point inside a country’s
potential
production possibility frontier to a point on it, which means that primary product trade yields higher welfare.
• The gain implies that the “surplus” export resources have no alternative uses and cannot be switched
to
domestic use.
– E.g., mines, fishing grounds, cash crops have no alternative domestic use, and the marginal utility of
consuming their products would soon be zero.
• Explains well the the start of trade and the rapid expansion of primary product exports in most of the
developing world in the late 19th and early 20th century.
• Assumed additional benefits: increased exports permit imports that may be more productive than
domestic
resources.

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• Key question: How well do such models explain the continued reliance of developing countries on
primary
product exports, and whether such reliance is good for long-run growth and development?

Problems with Primary-Export-Led Growth:

Α. Export Pessimism
• Export pessimism (Prebisch/Wallerstein/Marxist critiques)
– Engel’s law means that primary products are inelastic with respect to income (i.e., quantity demanded
grows by less than incomes)
– However, manufactured goods and services have high income elasticities of demand.
– As countries get richer, primary-goods producers will find import demand rising faster than export
demand (“export pessimism”)
– Not only will relative demands work against primary-goods producers, but the terms of trade will also
decline (“immiserizing growth”).
• Price terms of trade = (average export price)/(average import price)
• Income terms of trade = export quantity * price terms of trade
– Solutions:
• build up manufacturing base to counter falling export demand and declining terms of trade (import
substituting industrialization)
• Solutions
–Cultivate manufacturing base to counter falling export demand and declining terms of trade (import
substituting industrialization)
–Intervene to stabilize commodity prices through buffer stocks
–Create commodity cartels (OPEC) and volatility compensation
• Evidence
–No secular decline in commodity terms of trade (except 1980s?)
–Observed booms and busts in commodity prices, but this has to do with business cycle considerations, not
a secular decline
– Problems with interpreting aggregate commodity terms of trade
•different commodity prices rise or fall at different rates
•no LDC is pure exporter of commodities and importer of manufactures
•changes in price terms of trade indices alone cannot explain differences in economic performance:
e.g., comparison between Ghana and Malaysia.
Β. Price Volatility
• Hypothesis:
– Price instability for primary products may lead to
• instability in export earnings
• uncertainty about the availability of foreign exchange and
• more “noise” surrounding investment opportunities
– producing slower growth through less (and less efficient) investment
• Evidence:
– LDCs with high exports/GDP ratio end up investing more but grow more slowly.
– Why? Permanent income hypothesis: save windfalls for rainy day, but signaling effects reduce the
efficiency of investment.

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Γ. Linkage Pessimism

• Hypothesis:
– Linkage effects are weak in primary exports sectors:
• ‘enclave’ character of extractive industries and some plantations
• repatriation of profits by foreign-owned companies
• not much technology transfer; “can’t build ships by selling fish”
• Evidence:
– True that in certain cases there don’t appear to be strong linkage effects (oil refineries, iron mines,
other enclaves).
– However, there are opportunities for countries to use benefits of natural resource exploitation to
finance growth of other sources of future income: compare Malaysia (GPRS pp. 467-468) and Ghana (pp.
471-472).

Δ. Dutch Disease
• History:
– Discovery of natural gas in Netherlands in 1960; it was believed that this would result in export boom
and prosperity
– Instead, Holland suffered from rising inflation, declining exports of manufactures, and rising
unemployment.
– This pattern has been repeated in many other contexts, especially where oil has been discovered.
• Explanation:
– Booming raw material exports cause an appreciation of the real exchange rate: RER = E * (Pw/Pd),
for two reasons: influx of foreign exchange may cause currency appreciation (E falls), and greater demand for
nontradables leads to inflation (Pd rises relative to Pw).
– Resource sector booms and nontradable sectors expand, but other tradables (manufacturing,
agriculture) contract as RER appreciates.
• Other consequences:
– Government sectors tend to expand through increased tax revenues from resource industry. This can be
good or bad, depending in how these temporary windfalls are used:
• Nigeria:
– wasted on unnecessary infrastructure projects, salary increases for government officials, etc.
• Indonesia:
–“sterilized” financial inflows by accumulating foreign reserves (retiring foreign debt) as a kind of
saving
–devaluation of currency to keep RER from appreciating too much
–increased protection of manufacturing (though not very effective)
–redirected government expenditures toward rural development and social infrastructure (especially
health and education)

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 Dualism and Development

The economics of unequal sectoral, regional and international development

Dualism
• Refers to a condition of economic and social division in economic development, usually found in early
stages of development.
• The divisions manifest themselves as:
–Differences in the level of technology between sectors or regions.
–Differences in the degree of geographic development.
–Differences in social customs and attitudes between an indigenous and an imported social system.
• A dual economy can be characterized by:
–A difference in social customs between the subsistence and exchange sectors of the economy.
–A gap between the levels of technology in the rural subsistence (i.e. traditional) sector and industrial
monetized (i.e. modern) sector.
–A gap in the level of per capita income between regions, if the traditional and modern sectors are
geographically separated

It is not untypical for social, technological and geographical dualism to occur together, with each type of
dualism tending to reinforce each other.
International inequality and dualism
• Dualism theory has also been used to explain the widening international differences in the level of
development between rich and poor nations.
• These are usually referred to as center-periphery models:
–Through trade, developing countries have been forced into the production of goods, especially primary
products, with inelastic demand with respect to price and income.
–Industrial goods and services produced and traded by richer countries tend to have a much higher
income elasticity of demand.
–Result is unequal exchange: falling real terms of trade and foreign exchange earnings for poorer
countries and less long-run growth in poor as opposed to rich countries.

Whereas dualism within a country predicts divergence in the level of income between industrial/modern and
agricultural/subsistence regions or sectors, center-periphery models predicts divergence between developed
and developing countries in the world.
What is required in both cases is structural change: within a dual economy, regional differences will
first be pronounced but as the modern sector grows and agriculture shrinks in size, regional disparities will
weaken as countries get richer. The necessary structural change is endogenous: the degree of regional
inequality within a country first rises with the level of development then decreases. In contrast, the necessary
structural change required for overcoming international inequality may be more exogenous: i.e. world trade
needs to be restructured to encourage the growth in exports with higher income elasticity of demand for
developing countries, i.e provide the manufactured and processed primary product goods with easier access to

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world markets.
The current pattern of "dualism within dualism"
• There are currently two types of “dualism” in patterns of resource use within developing countries that are
very much relevant to the problem of resource degradation and poverty..
•The result is a pattern of “dualism within dualism”.
•The first “dualism” concerns aggregate resource use and dependency within the global economy.
–Most low and middle-income economies are highly dependent on the exploitation of natural resources for
export earnings and development.
•The second “dualism” concerns aggregate resource use and dependency within a developing economy.
– A substantial proportion of the population in low and middle-income countries is concentrated in
marginal areas and on ecologically 'fragile' land, such as converted forest frontier areas, poor quality
uplands, converted wetlands and so forth.

The first “dualism” concerns aggregate resource use and dependency within the global economy. Most low
and middle-income economies are highly dependent on the exploitation of natural resources. For many of
these economies, primary product exports account for the vast majority of their export earnings, and one or
two primary commodities make up the bulk of exports. Moreover, recent evidence suggests that increasing
economic dependence on natural resources is negatively correlated with economic performance. The
implications for low income countries is that the “take off” into sustained and structurally balanced economic
growth and development is still some time away, and thus the dependence of their overall economies on
natural resources will persist over the medium and long term.
The second “dualism” concerns aggregate resource use and dependency within a developing
economy. A substantial proportion of the population in low and middle-income countries is concentrated in
marginal areas and on ecologically 'fragile' land, such as converted forest frontier areas, poor quality uplands,
converted wetlands and so forth. Households on these lands not only face problems of land degradation and
low productivity but also tend to be some of the poorest in the world.

Two indicators of "dualism within dualism"

• First dualism: the degree of resource dependency of an economy.
– An economy with a primary product
export share > 50%.
• Second dualism: substantial numbers of rural poor with livelihoods vulnerable to resource degradation
and poor income prospects.
•"20-20 rule" of rural poverty-resource use dualism:
–20% or more of the population concentrated on fragile land.
–20% or more of its population living in rural poverty.

Selective Countries with "Dualism within Dualism" Features

Table 1 combines the above two sets of indicators to show the extent of “dualism within dualism” for 72 low
and middle-income economies. The countries are grouped in terms of their degree of resource dependency, as
measured by the share of primary products in total exports, and the extent to which their populations are
concentrated on fragile land. The figure in the parentheses by each country also indicates the percentage of
the rural population below the national poverty.
56 out of the 72 economies have a primary product export share of 50% or more, and therefore
display evidence of the first type of “dualism”, i.e. resource dependency with the global economy. All the
economies have 20% or more of their population on fragile land and all but seven (shown in green) also have
20% or more of the rural population living in absolute poverty. Thus by the “20-20 rule”, virtually all the
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economies listed in Table 1 show signs of the second type of dualism, i.e. a high incidence of rural poverty-
resource degradation linkage within the economy. What is more striking is that, with the exception of the
Yemen Arab Republic and Indonesia, all 56 highly resource-dependent countries also satisfy the “20-20 rule”.
That is, three-quarters of the countries listed in Table 1 show considerable evidence of “dualism-within-
dualism” characteristics. Only China and Mexico, and to a lesser extent Jordan and Malaysia, do not conform
very strongly to either the first or the second type of dualism, according to the “20-20 rule” for population
concentrated on fragile and the degree of rural poverty.

Share of Population on Share of Population on Share of Population on

Fragile Land > 50% Fragile Land 30-50% Fragile Land 20-30%
Primary Product Burkina Faso (61.2) Algeria (30.3) Ecuador (47.0)
Export Share Chad (67.0) Angola (NA) Congo, Rep. (NA)
> 90% Congo Dem. Rep. (NA) Benin (33.0) Liberia (NA)
Laos (53.0) Botswana (NA) Zambia (88.0)
Mali (72.8) Cameroon (32.4)
Niger (66.0) Comoros (NA)
Papua New Guinea (NA) Eq. Guinea (NA)
Somalia (NA) Ethiopia (31.3)
Sudan (NA) Gambia (64.0)
Yemen A.R. (19.2) Guyana (NA)
Iran (NA)
Mauritania (57.0)
Nigeria (36.4)
Rwanda (51.2)
Uganda (55.0)
Primary Product Egypt (23.3) Central Af. Rep. (66.6) Bolivia (79.1)
Export Share Zimbabwe (31.0) Chad (67.0) Burundi (36.2)
50-90% Guatemala (71.9) Côte d’Ivoire (32.3)
Guinea (40.0) El Salvador (55.7)
Kenya (46.4) Ghana (34.3)
Morocco (27.2) Guinea-Bissau (48.7)
Senegal (40.4) Honduras (51.0)
Sierra Leone (76.0) Indonesia (15.7)
Syria (NA) Madagascar (77.0)
Tanzania (51.1) Mozambique (37.9)
Myanmar (NA)
Panama (64.9)
Peru (64.7)
Togo (32.3)
Trinidad & Tobago
(20.0)
Primary Product Costa Rica (25.5) China (4.6)
Export Share Haiti (66.0) Dominican Rep. (29.8)
< 50% Lesotho (53.9) India (36.7)
Nepal (44.0) Jamaica (33.9)
Pakistan (36.9) Jordan (15.0)
South Africa (11.5) Malaysia (15.5)
Tunisia (21.6) Mexico (10.1)
Sri Lanka (20.0)
Vietnam (57.2)

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 W.A.Lewis’s “unlimited” supplies of labor

• Modern sector: capitalist firms that maximize profits, subject to diminishing returns to capital and labor. A
large portion of profits are reinvested, and there is ongoing technological progress resulting in rising labor
productivity. Labor employed where its value marginal productivity equals the real wage.

• Traditional sector: subsistence economy with production for immediate consumption and negligible
investment. No wage labor, and “overpopulation” in the sense of disguised unemployment. Thus this sector
represents a huge “labor reservoir” for the modern sector, and this “unlimited” supply of labor expands with
population growth.
• Real wage rate differential:
– the wage level in the modern sector depends upon the income level in the traditional sector
(classical economic assumption of subsistence wages).
– However, the dynamics of the model are driven by the assumption that real wage of unskilled labor in
the modern sector is higher than the earnings in the traditional sector.
–Result is that modern sector will attract labor from the traditional sector.
• Key assumption: the modern sector must be self-sufficient in food and does not need to be supplied with
wage goods from the traditional sector.

Modern sector depends on the traditional sector only for the supply of labor, and the supply of labor is
essentially infinitely elastic at the prevailing real wage.
Inherently optimistic; the economy starts off dualistic but then achieves balanced growth.

Lewis’s dual economy model

Assumptions: the economy is closed, a constant share of profits is saved, savings equal investments. Thus
savings and investments will rise with the total volume of profits in the modern sector. Because “unlimited
supplies of labor” imply a constant subsistence wage initially, the share of profits in total income will rise and
thus total productivity and employment in the modern sector will grow. The real wage in terms of food as
well as the intersectoral terms of trade are constant as long as there are unlimited supplies of labor.

In t=0, the economically active population is P0, whereas the demand for labor in the modern sector
is L0. There is a slight profit, which is reinvested and so the marginal productivity of labor increases. In the
next period t=1, labor employment increases to L1, and the labor reservoir shrinks to P1-L1 as employment
growth is faster than population growth. Profits have increased to wMN. Profits are reinvested, and
productivity continues to shift out until time T, when the labor reservoir disappears. Employment in the
modern sector becomes equal to the total economically active population at point T, the “Lewis Turning
Point”. Real wages start to increase after that and we have the fully modern economy without dualism.

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dY/dL,
wages (w)

M
The Lewis
“Turning
Point”
N
w

0 L1 Labor (L),
L0 P0 P1 L T = PT Population
(P)
t=1

t=T
Time (t)

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Criticisms of the Lewis’s Model
• Highly optimistic: the existence of an impoverished traditional sector is a great advantage to the growth
of the modern sector.
–as long as there are unlimited supplies of labor, accumulation of capital in the modern sector will also be
unlimited, as will productivity growth and employment opportunities.
• In Lewis’s original model, it is assumed that the modern sector does not depend on the traditional sector
for food; i.e., that the modern sector is completely self-sufficient in supplies of wage goods.
• As soon as it is assumed that the modern sector depends on the traditional sector also for supplies of wage
goods (i.e. food), and that each worker in the modern sector needs a subsistence minimum of such goods, it
is not all clear that the supply of wage goods to the modern sector will keep pace with the growth of
employment.
• As with most dual economy models, Lewis’s model is a supply-side model; i.e growth in the modern
sector is restricted only by the available savings. The model does not consider that inadequate aggregate
demand could constrain growth in the modern sector.

Lewis’s model might still apply if the modern sector includes both modern industry and agriculture.
However, most dual economy models assume that the modern sector is “industry” and the traditional sector
is “agriculture”.

Fei-Ranis model of agricultural sector

W=x*P represents the “wage bill” of the agricultural population.

The slope x* is the constant “institutional wage rate”.

At t=0, there is a surplus labor force of P0-P*, but no agricultural surplus since production just
covers the institutional consumption needs of the agrarian population, X0/P0 = x*.

At time t =1, production has increased to X1, due to technological progress at the rate θ = (X1-X0)/X0.
Population has increased to P1 at the rate (P1 – P0)/P1. However, it follows that ρ < θ, and an agricultural
surplus should emerge. To see this, note that the agricultural wage bill has increased to W1=x*P1, but there
is now an agricultural surplus of X1-W1. At the same time, the redundant labor force has increased further
to P1-P*. Consequently, there is “double slack” in the agrarian economy and thus the precondition for
industrialization (growth of the modern sector).

As the agricultural surplus continues to grow at the same rate of growth as agricultural productivity, gx, and
redundant workers are transferred to the modern sector, the agricultural labor force will eventually be
reduced to P*. The marginal product any further laborers released from agriculture will now be positive,
and the agricultural sector will lose output if that happens. This is equivalent to the Lewis turning point and
the emergence of a modern economy. With the reduction of the labor force to P**, the marginal
productivity of labor in agriculture rises to reach the institutional wage, dW/dP = x*. When the labor force
is reduced below that point, the agricultural real wage rate becomes equal to the marginal productivity of
labor and higher than the former institutional wage, x*. The economy is fully commercialized (i.e. both
modern and agricultural sectors), and the stage of “maturity” is reached.

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14
The Lewis Model
High and rising labour productivity in industry, while in agriculture it is low and stagnant; labour reallocation from
agriculture to industry as the basis for ‘extensive’ growth; and a rising investment rate as growing incomes permit
increased saving.

Central and measurable properties of the Lewis model are:

(i) real wages (and by extension living standards) grow slowly with industrialisation while employment rises rapidly;
(ii) there is high and rising labour productivity in industry, while in agriculture it is low and stagnant;
(iii) labour reallocation from agriculture to industry forms the basis for ‘extensive’ growth; and
(iv) a rising investment rate as productivity rises due to increased savings out of profits.

Workforce (EAP) and Population (POP) in Latin America

•Latin America in the twentieth century was characterised by rapid expansion of the labour force.
•This is particularly striking when compared with the more ‘regular’ patterns for the US and Spain.
•Whereas the increase in population and workforce may have exerted a positive demand effect on the creation and
expansion of domestic markets in the first half of the century, in the second half the problem was one of productively
adsorbing the growing labour force - the failure to do so exacerbating social inequality.
•Participation of the population in the workforce has changed, but largely due to demographic reasons – which
themselves are driven by public intervention and rapid urbanisation – while the increase of female participation is
subsequent to the extensive industrialisation period (1940-70) rather than a driver of it.

GDP per capita Literacy Life Expectancy

(1970 PPP dollars) (percent) (years)
1900 1950 2000 1900 1950 2000 1900 1950 2000

Argentina 497 811 1,459 51 88 97 39 61 73

Brazil 114 245 874 35 49 85 29 43 68
Chile 284 592 1,602 44 79 96 29 49 75
Colombia 290 389 921 34 62 92 29 49 71
Mexico 240 519 1,284 24 61 91 25 48 73
Venezuela 94 719 1,014 28 51 93 28 51 73
LA6 216 440 1,077 33 60 89 29 48 70
LA13 … 319 538 25 46 82 31 43 67
Notes: Figures from Appendix Tables A.1, A.3 and A.4 in Astorga, Berges & FitzGerald (2004).

Latin America made dramatic improvement in per capita income and social welfare during the twentieth century.
Furthermore, these increasing levels of literacy and life expectancy clearly improved the quality of the labour force and
contributed to productivity growth: indeed, the accumulation of physical and human capital stock accounts for nearly all
the productivity growth experienced during the twentieth century.
The evidence on living standards in Latin America
during the twentieth century indicates that these have risen in line with productivity, and that the ‘indirect’ components
of the real wage (health and education) have actually risen more rapidly that average incomes.

Investment share of GDP in Latin America

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• Investment rates - essential for the generation of new capital stock and embodiment of new technologies - have been
relatively low throughout the century in Latin America, as Figure 4 indicates. In fact gross fixed capital formation
averaged only 17 percent of GDP, about half the ratio experienced by the East Asian ‘tigers’ in recent decades
• However the investment rate did rise considerably between the first and second halves of the century, while its
volatility decreased. The explanation may relate to the reduced reliance on fluctuating export revenue (uncertainty
depresses investment) on the one hand, and the development of domestic financial institutions on the other.

30.0

25.0

20.0
p ercen t

15.0

10.0

5.0

0.0
1900 1920 1940 1960 1980 2000
Capital stock per worker in Latin America
• Capital stock per worker stagnated between 1900 and 1950, but then rose rapidly – tripling between
1950 and 1980 – only to revert to stagnation after the debt crisis of 1982.

7,000

6,000
1970 PPP$ per worker

5,000

4,000

3,000

2,000

1,000

-
1900 1920
TFP growth (percent) 1940 1960 1980 2000

TFP growth
1900-2000 1900-1936 1937-1977 1978-2000
Argentina 0.15 0.13 0.39 -0.23
Brazil 0.06 0.68 0.59 -1.87
Chile 0.33 0.24 0.26 0.58
Colombia -0.16 0.60 0.06 -1.76
Mexico 0.10 0.50 0.29 -0.86
Venezuela 0.31 1.41 -0.17 -0.54
LA6 0.08 0.56 0.39 -1.26

TFP growth averaged less than one tenth of one percent per annum between 1900 and 2000, and thus accounted for just
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 2 percent of the overall increase in productivity during the century. Further, the TFP growth rate clearly declined
throughout the century. On the one hand, the more rapid process of capital accumulation during 1937-77 was not
accompanied by a rise in TFP growth as would be suggested by the ‘embodiment’ hypothesis. On the other hand, the
economic reforms saw a decline in TFP from 1978 onwards in every country except Chile. The relatively rapid apparent
TFP growth in the first third of the century is almost certainly related to the reliance on natural resource exports for
growth, endowments of which are not part of our production function.

The Lewis Model and the Latin American experience

On the one hand, it is clearly factor accumulation (physical capital and human capital – i.e. skilled labour) that drives
growth, rather than total factor productivity, that drives growth in this case at least. This is clearly in the classical
tradition that Lewis espouses. This process is clearly associated with protected industrialisation (Lewis’ interpretation
of trade theory) when labour productivity rises most rapidly, although whether this reflects the shift of labour from
agriculture to industry will be addressed in the next section of this paper.

On the other hand, savings and investment rates, which are expected to rise under the Lewis model, clearly do not
exhibit the upward trend expected as the modern capitalist sector expands. Moreover, while capital stock per worker
rises in the middle period of protected industrialisation, it ceases to do so thereafter: but not because profit shares
decline (indeed one of the major achievements of structural adjustment has been to create greater income inequality)
but rather because the investment rate failed to recover in response to increased incentives and the labour force
expanded faster than investment.

Structural Change and Industrialisation Phases in L.A.

Output, employment, and productivity in manufacturing grew faster than in agriculture for all countries save Brazil and
Venezuela. Surprisingly, the inter-sectoral productivity gap is not large: on average, productivity growth in agriculture
reached more than three-quarters of that in manufacturing, while the variance in industrial productivity is slightly
greater than in agriculture. This gap is widest in Mexico and narrowest in Chile and Colombia, but the pattern seems
contrary to expectations. There are two possible explanations: first, much of the apparent increase in agricultural
productivity is in fact the result of rural-to-urban migration of surplus rural labour; and second, technological transfer
into ‘modern’ agriculture (from the US in particular) has been less difficult than the more complex technological
learning in manufacturing, which has required new forms of corporate organisation as well as imported equipment and
labour skilling.

Sectoral productivity growth rates 1900-2000

5,000
Agriculture Manufacturing
4,500

Output Employment Productivity Output Employment

4,000 Productivity
LA6 2.9 1.4 1.7 4.9 3.03,500 1.8
Argentina 2.3 0.8 1.5 3.5 1.6 1.9
Brazil 1,400 3.4 1.4 2.0 5.1 3.93,000 1.1
Chile 2.5 0.8 1.7 3.7 1.7 2.0
197 0 PPP $ per w orker

1,200
Colombia 2.6 0.7 1.9 4.4 2.32,500
worker 2.0
Mexico1,000 2.3 1.2 1.0 5.4 2.42,000 2.9
per
PPP$
Venezuela 3.6 1.2 2.3 5.3 1970 3.2 2.0
800 1,500

Agricultural and Manufacturing Productivity in Latin America 1,000

600

400 500

200 -
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- 1900 1920 1940 1960 1980 2000
1900 1920 1940 1960 1980 2000
Characterisation of Sectoral Growth
Growth relative to long run
Output Employment
Extensive (EXT) Higher Higher
Intensive (INT) Higher Lower
Stagnation (STA) Lower Lower
Regression (REG) Lower Higher

Characterisation of sectoral growth periods in Latin America

Agriculture Manufacturing

1978- 1978-
1900-36 1937-77 1900-36 1937-77
2000 2000
LA6 REG INT STA STA EXT STA
Argentina EXT STA STA EXT EXT STA
Brazil EXT EXT STA REG EXT STA
Chile REG EXT INT STA EXT REG
Colombia REG INT REG STA EXT REG
Mexico STA EXT REG STA EXT REG
Venezuel EXT STA REG STA EXT STA
a
The LA experience

• The evidence for agriculture is mixed: growth was extensive in most of the LA6 in the first and second periods, with
four countries (Brazil, Chile, Colombia, and Mexico) showing an improvement in the second period. In the third period,
however, growth was either stagnant or regressive in all countries save Chile—the only country to see sustained
progress over the course of the twentieth century as its agricultural sector shifted from regressive, to extensive, and
finally intensive, growth. Stagnation in Brazil and Argentina in this period was due to continued urban migration.

•
• In contrast, growth trends in manufacturing present a more consistent picture, with the anticipated extensive growth

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phases occurring in all countries from 1937-77 after a generally stagnationary first period. As discussed below, this was
accompanied by the highest rates of growth in both fixed and human capital. However, there is clearly a failure to attain
intensive growth in the 1978-2000 period. Half of our countries experienced stagnation and the other half experienced
regression. Possible explanations include the adverse effects of external shocks, financial crisis, and fiscal retrenchment
on demand, as well as the negative impact of trade liberalisation and economic reform on industrial employment,
particularly in the less competitive small and medium firms.

•
• On the one hand, perhaps the most surprising finding is the steady growth of labour productivity in agriculture over
the century, a rate that is of a similar order of magnitude to that for industry. This is due to both technological change
and labour withdrawal, but is clearly not anticipated in the Lewis model. On the other hand, the ‘extensive’ process of
industrialisation in the middle period does broadly correspond to the Lewis model, as does the lack of industrial
progress during the opening and closing decades of the century when economies were more open is similarly consistent
with his views.

De-industrialisation

•Ισχύει η υπόθεση του Bell περί μεταβιομηχανικής κοινωνίας (Postindustrial society), ή μήπως λόγω του παγκόσμιου
ανταγωνισμού παρατηρείται μερική «αποβιομηχανοποίηση» (deindustrialization-due-to-globalization-hypothesis);

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