JIMMA UNIVERSITY

COLLEGE OF LAW AND GOVERNANCE

Department of Governance and Development Studies

Rural Development Module

Jimma University

September, 2021

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 TABLE OF CONTENTS
ContentsPage
UNIT ONE...........................................................................................................................5
INTRODUCTORY REVIEW OF DEVELOPMENT AND RURAL DEVELOPMENT..5
Section One..........................................................................................................................7
The Concept of Development..............................................................................................7
1.1 Development and its basic elements..........................................................................7
Section Two.......................................................................................................................10
Major issues in Development............................................................................................10
2.1 Growth and distribution.......................................................................................10
2.2 Agricultural and industrial development.............................................................10
2.3 Urban versus rural development..........................................................................11
Section Three.....................................................................................................................12
Indicators of Development................................................................................................12
3.1 Characteristics of Underdevelopment......................................................................12
3.2 Dissatisfaction with the Conventional Indicators of Development.........................13
Section Four.......................................................................................................................15
The Concept of Rural Development..................................................................................15
4.1 The Background.......................................................................................................15
4.2 Rural Development: Defined...................................................................................16
Section Five.......................................................................................................................18
Aims and Components of Rural Development..................................................................18
5.1 Aims of Rural Development....................................................................................18
5.2 Components of Rural Development........................................................................19
Section Six.........................................................................................................................21
The Rural Poor and Poverty..............................................................................................21
6.1 The Rural Poor.........................................................................................................21
6.2 Poverty, its Manifestations and Measurement.........................................................23
6.3 Rural Poverty Unperceived......................................................................................27
Section Seven.....................................................................................................................32
Agriculture and Rural Development..................................................................................32
7.1 Definition of Agriculture.........................................................................................32
7.2 Contribution of Agriculture in Tropical Countries..................................................34
7.3 The Evolution of Thinking about Agriculture.........................................................36
UNIT TWO........................................................................................................................46
PERSPECTIVES OF RURAL DEVELOPMENT............................................................46
Section One........................................................................................................................48
The Modernization Theory................................................................................................48
1.1 Introduction..............................................................................................................48
1.2 The Modernization Theory......................................................................................50
Section Two.......................................................................................................................54
Lewis Model of Economic Development with Unlimited Supplies of Labor...................54
2.1 The Lewis Model of Economic Development with Unlimited Supplies of Labor..55

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Section Three.....................................................................................................................59
The Dependency Theory of Development.........................................................................59
3.1 The Dependency Theory of Development...............................................................60
Section Four.......................................................................................................................63
Rosenstein-Rodan’s theory of Big Push............................................................................63
4.1 Rosenstein-Rodan’s theory of Big Push..................................................................64
Section Five.......................................................................................................................65
The Human Capital Model of Development.....................................................................65
5.1 The Human Capital Model of Development...........................................................66
UNIT THREE....................................................................................................................72
RURAL DEVELOPMENT POLICIES AND STRATEGIES..........................................72
Section One........................................................................................................................73
Rural Development Policy.................................................................................................73
1.1 Policy: Defined........................................................................................................74
1.2 Conditions and Justification for Rural Development Policy...................................75
1.3 Desires, Process and Instruments of Rural Development Policy............................76
1.4 Classification of Policy and Policy Instruments......................................................78
Section Two.......................................................................................................................81
Rural Development Strategies...........................................................................................81
2.1 Meaning of ‘Strategy’..............................................................................................82
2.2 Types of Rural Development Strategies..................................................................82
UNIT FOUR......................................................................................................................94
RURAL INSTITUTIONS.................................................................................................94
Section one.........................................................................................................................96
Meanings and Roles of Institutions...................................................................................96
1.1. Institutions..............................................................................................................96
1.2. Institutional Change: Demand and Supply of Institutional Innovation................100
Section Two.....................................................................................................................103
Rural Institutions: Rural Finance and Credit...................................................................103
2.1 Rural Finance and Credit.......................................................................................104
2.2 Sources, Purposes, Security, and Time periods of loans.......................................104
Section Three...................................................................................................................107
Rural Institutions: Cooperative Institutions.....................................................................107
3.1 Cooperatives..........................................................................................................108
3.2 Cooperative Institutions and Rural Development..................................................108
Section Four.....................................................................................................................110
Land Rights: Land Tenure Arrangements.......................................................................110
4.1 Property Rights in land: Land Tenure...................................................................111
4.2 Land Rights: Land Tenure Arrangements.............................................................113
4.3 Land Reform..........................................................................................................114
Section Five.....................................................................................................................116
Rural Markets and Marketing..........................................................................................116
5.1 Markets..................................................................................................................117
5.2 Marketing...............................................................................................................117

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Section Six.......................................................................................................................121
Informal Rural Institutions..............................................................................................121
6.1 Informal Institutions..............................................................................................122
6.2 Informal Institutions and Rural Development: Informal (Indigenous) Credit and
Insurance Institution....................................................................................................123
UNIT FIVE......................................................................................................................129
AGRICULTURAL TECHNOLOGY..............................................................................129
Section One......................................................................................................................131
Conceptual Elements of Technology...............................................................................131
1.1 Definition of Technology......................................................................................132
1.2 Sources of Technology..........................................................................................133
1.3. Roles of Agricultural Technology........................................................................134
Section Two.....................................................................................................................135
Agricultural Research and Development (R&D) and Technology Adoption.................135
2.1 Characteristics of Agricultural Research and Development (R&D).....................136
2.2 Technology Adoption............................................................................................138
2.3 Some Principal Consideration for Research Policy and Management..................139
Section Three...................................................................................................................141
Approaches to Agricultural Research and Extension......................................................141
3.1 Frameworks of Analysis of Research and Extension............................................142
3.2 Approaches to Agricultural Research and Extension............................................143
UNIT SIX........................................................................................................................156
HUMAN CAPITAL AND RURAL DEVELOPMENT..................................................156
Section One......................................................................................................................157
The Concept of Human Capital.......................................................................................157
1.1 Human Capital.......................................................................................................158
Section Two.....................................................................................................................160
Investment in Human Capital..........................................................................................160
2.1 The Need to Invest in Human................................................................................161
2.2 Education and Human Resources..........................................................................164
Section Three...................................................................................................................167
The Role of Education in Development..........................................................................167
3.1 The Link between Education and Development....................................................168
3.2 Education and Rural Development........................................................................170
3.3 Non-formal Education for Rural Development.....................................................172
References........................................................................................................................178
Assignment......................................................................................................................180

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 UNIT ONE
INTRODUCTORY REVIEW OF DEVELOPMENT AND
RURAL DEVELOPMENT

Introduction
Hello dear students! Welcome to studying the course Rural Development. The primary
purpose of this unit is to help you understand the concept of rural development. The
subject of rural development has gained widespread appeal in recent years. This is largely
a result of the way issues regarding development began to be perceived. In this unit, a
brief discussion of the concept of development will be dealt with. During the post-World
War II era, development theories became increasingly dissatisfied with the way
traditional concepts of development emphasized growth and neglected important issues
related to distributive justice and other dimensions of development. The interest in rural
development is partly an offshoot of such disenchantment and also on account of the
growing realization of the centrality of rural development in facilitating the process of
overall development.

Rural development is a subset of development. Development is a broader phenomenon.

Development is a universally acknowledged goal of individuals, families, communities,
societies and nations all over the world. Development is also natural in the way that all
forms of life on earth are inherently imperative to survive and develop. This glimpse of
notes on rural development is prepared with the aim of highlighting the core concepts and
perspectives of rural development and introducing major development aspects including
policies and strategies, human capital, technology, and institutions to students of
development.

Accordingly, this unit is divided into five sections. The first section elaborates the
concept of development. The second section deals with the concepts of rural
development. The aims and analysis of rural development is the focus of section three.
Section four is about the meaning and nature of rural poverty and rural poverty. Finally,

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section five deals with the apparent interaction between agriculture and rural
development.

Unit Objectives

With the successful completion of this unit, you will be able to;

 Define what development is all about

 Define the concept of rural development
 Explain the aims and analysis of rural development
 Clarify the meaning of rural poor
 Analyze the relationship between agriculture and rural development

Pre test questions

 How do you define development?
 What is rural development?
 What are the aims of rural development?
 Who are rural poor?
 What are the apparent relationship between agriculture and rural development?

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 Section One
The Concept of Development

Section Overview
Dear students! Welcome to the first section of this module and the whole course in
agriculture and rural development.In this first section of the first unit you will be
introduced with what development is all about and its basic elements.

Section Objectives

After the completion of this section, you will be able to;

 Define what development is all about

 Identify the basic elements of development

1.1 Development and its basic elements

?Dear student, what do we mean by “Development”?

Our first concern is to define the whole purpose of development. This should not be to
developthings but to develop man. Human beings have basic needs like food, shelter,
clothing, health and education. Any process of growth that does not lead to fulfillment of
these needs or – even worse disrupts them is a travesty of the idea of development’
(World Bank, 1975). Hence, ‘satisfying the basic needs of poor should be the core of
development process’. Moreover, the fundamental aims of the world community should
be to achieve a life of dignity and wellbeing for all world citizens.

Development is a value-laden and subjective concept with different definitions as given

by different professional. Development means basic all unfolding or opening up

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something, which is latent, and with people it means opening-up or unfolding their
potential powers. Development is a change that is desirable. But since what is desirable at
a particular time, place and in a particular culture or may not be desirable at other places,
or at other times in the same place and in the same cultural setting, its is impossible to
think of a universally acceptable definition of development. However, at best one can
define development in the given society as a set of desirable societal objectives which
society seeks to achieve.

Development is a multidimensional process, and as process development is not

synonymous with growth, for unlike the former, the latter does not consider distribution
of progresses among members of a society. Development involves multiple dimensions
including economic, social, political, institutional, cultural, environmental, and
technological aspects.

Development is bringing about of equilibrium to a more needed objectives satisfactory

new equilibrium. Development is a process of improvement with respect to a set of
values. It is a multidimensional process or a set of objectives with economic, social,
political and cultural dimensions. Development can also be conceived as a
multidimensional process involving changes in structures, attitudes and institutions as
well as the acceleration of economic growth, the reduction of inequality and eradication
of absolute poverty and unemployment within growth economy.

?What are the basic elements of development?

The basic elements of development are the following:
 Removal of inequality and poverty
 Increase in material welfare of the people
 Increase in social well-being (education, health, housing, etc)
 An equitable distribution of the gains of development among different groups
of people in a region or country

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  An enhancement in technology and the capacity to produce a wider range of
goods and services in the economy leading to a better quality of life.
 Building institutional structures which permit participation in decision-making
at all levels, equalization of opportunities for development and removal of
disparities.

 Activity – 1

1. What do you understand by the term development?

____________________________________________________________
____________________________________________________________
____________________________________________________________
___
2. What are the basic elements of development?
____________________________________________________________
____________________________________________________________
____________________________________________________________
___

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 Section Two

Major issues in Development

 Section Overview
Dear students, in the previous section you have learnt about the concepts of development.
In this section you will learn about the prevailing major issues in development. Dear
students, the concept of development have been beset by a host of debatable issues.
Hence, the contentious issues in development will be given due emphasis.

Section objectives

Up on a successful completion of this section, you will be able to:

*Identify the major issues in development (growth and distribution, agricultural and
industrial development and urban vs rural development).

Major issues in development

It must be emphasized that there cannot be a single well defined path towards
development. Different countries and regions will have their own specificities into
account in order to develop their societies. This is one reason why development has been
a much debated subject. In this section we will highlight some of the major issues, which
have featured in this debate.

2.1 Growth anddistribution

For a long time it was assumed that economic growth would be an engine that will lead
naturally towards development. Consequently, little or no attention was paid to the
question of distributive justice. One of the major outcomes of this situation was the
‘trickle down’ theory, which stated that if there was sufficient growth everybody would
benefit from it. However, growth by itself doesn’t guarantee an improvement in the
quality of life for the vast number of people.

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 2.2 Agricultural and industrial development

This has been one of the most important issues at stake in the debate on development. If
the agricultural sector doesn’t grow there may be sharp increase in the prices of food-
grains that will affect the poor. On the other hand, industrial stagnation will mean that
surplus labor from the agricultural sector can’t be usefully employed. Therefore, both
agriculture and industry will have to grow so that the pace of development is fast enough
to improve the living conditions of the people.

2.3 Urban versus ruraldevelopment

The vast majority of the population in Ethiopia and other developing countries live in
rural areas. There is a continuing influx of people into the cities looking for jobs as the
rural economy is not been able to provide employment to them. It needs to be pointed
out that the problem of poverty, poor health and illiteracy is widespread in both rural as
well as urban areas of developing countries. The problem of rural poverty and
unemployment is the crux of the problem, without solving it, there can not be genuine
development. Hence, rural development has come to acquire critical importance.
Sustained improvement in the quality of life in rural areas is likely to slacken the pace of
large-scale migration of villagers to cities in search of jobs.

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 Section Three

Indicators of Development

 Section Overview
Dear students! In the previous lesson you have learnt about the issues of development. As
mentioned earlier, development is a relative concept. Some countries may be more
developed than others, but less developed than others. In this lesson you will learn about
the yardsticks by which comparisons between countries can be made.

Section Objectives

Up on a successful completion of this section, you will be able to:

 Identify and list the indicators by which it is possible to evaluate

development.
 Explain the drawbacks of the conventional indicators of development.

3.1 Characteristics of Underdevelopment

Dear student, we have already mentioned that development is a relative concept. Hence,
various parameters are used to make a comparison among countries and/or regions.

? What are the yardsticks by which comparisons between/among regions

(countries) can be made?

Thefollowing are some of the most important characteristics of under-development.

Using these, you should be able to roughly differentiate between developed and
developing countries.

Most developing countries are characterized by the following conditions:

* Mass poverty:The poverty levels are very striking in the developing countries.

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* Low levels of income and concentration of incomes in a few hands: Low levels of
income for large sections of the masses and high inequalities in the distribution of income
are very apparent in the developing countries due to the fact that assets are unequally
distributed.

* Low levels of productivity and backward technology are the other problems of the
developing countries. Increased productivity is an indication of greater efficiency.
Improvement in technology and better management and organization are necessary for
this purpose.

*High levels of unemployment and underemployment are characteristics of developing

countries. Since the level of industrialization is low and the agricultural sector cannot
absorb the entire workforce, the problem of unemployment and underemployment
continues to grow.

* Poor health, nutrition, illiteracy and poor housing are also characteristic features of
developing countries. The low levels of income obviously play a central role in
perpetuating these problems. As earnings are low, people aren’t able to consume a
balanced diet providing the requisite number of calories and nutrients. The most
vulnerable are the children in the developing countries. Compared to standards prevailing
in the developed countries, the death rates are still very high in the developing countries.

* Lower status of women- In underdeveloped countries, women are much more

vulnerable than their counterparts in the developed countries. On most development
indicators, they rank lower than their own country. Their health and nutrition is not at
satisfactory levels for large numbers. Female illiteracy is highly widespread.

3.2 Dissatisfaction with the Conventional Indicators of Development

Traditionally, growth was taken as the most, if not the only, indicator of development.
The use of Gross National Product (GNP) or the Gross Domestic Product (GDP) as the
indicator of development has been criticized on several accounts. Development can be
viewed in terms of progress in (i) Output and income (ii) Conditions of production (iii)

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level of living (nutrition, health, housing and education, etc) (iv) attitude to work (v)
proliferation of sound institutions and policies.

 GNP as an average level of income (per capita) ignores the inequality in the
distribution of national income;

 It also ignores the availability and utilization of goods and services and has
nothing to say on availability or otherwise of a whole range of basic needs such as
health, education, water, shelter, etc; and

 It tends to conceal the lower than average condition of the deprived.

Given these deficiencies of GNP/GDP as an indicator, several alternative contending

indicators of development have been suggested at different juncture by social scientists.

Hence, Human Development Index (HDI) is a recently developed index to measure

development involving both economic and social key indicators. It measures the average
achievements in a country in three basic dimensions of human development.

 A long and healthy life, as measured by life expectancy at birth;

 Knowledge, as measured by the adult literacy rate and the combined primary,
secondary and tertiary gross enrollment ratio; and

 A decent standard of living as measured by GDP per capita in PPP (purchasing

Power Parity) $ USD.

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 Section Four

The Concept of Rural Development

 Section Overview
Dear student, in the preceding section we have asserted that development is a broad
concept, involving a wide range of societal changes. Overtime, however rural
development has caught wider attention on account of the growing realization of the
centrality of rural development in facilitating the process of overall development
especially in developing countries. In this section, therefore you will learn about the
concept of rural development.

Section Objectives
After the successful completion of this section, you will be able to;
 Describe the background in which rural development as subject has gained
importance
 Explain the concepts of rural development

4.1 The Background

?Dear student, how does rural development as a subject gain importance?

Rural development became a planning concern as it became clear that the strategies
adopted in developing countries remained largely ineffective in alleviating poverty and
inequalities in rural areas. It became increasingly clear that apart from an effort to
increase agricultural and industrial production, it was also necessary to address directly
the problems of education, health services and employment and to attack the problem of
poverty in rural areas. The increasing interest in rural development is a result of the
realization that a systematic effort in necessary to create better living conditions in the
rural areas where the vast majority of populations of developing countries aside.

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During the 1950s and 1960s, development policy makers sought to increase productivity
and per capita income through advances in the manufacturing sector. Historically, it has
been observed that the industrialization and the advancement of economies inwestern
societies was linked to major economic changes in the rural societies. You may be aware
that the industrial revolution in England, as also in many other countries in Europe, and
the maturing of Japanese industry among others, were all preceded by far reaching
changes in agrarian societies. Land reforms and other legislative reforms were
instrumental in bringing about a change in rural economies in many of these countries.
Industrial growth and modernization were accompanied by increased productivity in the
agricultural sector and urbanization.

On the other hand, in large parts of the developing world, these conditions have not been
brought about. The impact that rural development strategies can have in these countries,
in the absence of those prerequisite changes, cannot be underestimated. It is also clear
that the patterns of economic transformation in developed countries cannot be replicated
as the historical circumstances in the developing countries are quite different from those
prevailing then in the former case. The upshot of all this is that well formulated and
clearly focused strategies of rural development are a must in the developing world.

4.2Rural Development: Defined

?Dear student, what is, therefore rural development?

The notion of rural development has been conceived in diverse ways by researchers,
ranging from thinking of it as a set of goals and programs to a well-knit strategy,
approach, or even an ideology. If you wade through the relevant literature, you will
realize that its scope and content are vague and do not have a well-accepted analytical
boundaries. However, this may be viewed as a weakness as well as strength. A weakness
because, apart from the issue of conceptual clarity, it also meant that the very operation
of this idea is a grey zone. A strength because such a situation allows considerable
flexibility for policy makers to take into account different ground realities.

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Rural development, as distinctive field of policy and practices and of research, emerged
in the early 1970s. World Bank and UN agencies played important roles in its emergence.
World Bank defines rural development as a strategy designed to improve the economic
and social life of a specific group of people the rural poor. Rural development is a major
part of national development strategy. Rural development is much broader than
agricultural development, for rural development is concerned not with agricultural
economy (production, income, trade, market and policies), but also with other aspects of
rural economy. It is in fact a distinct approach to the development of the economy as a
whole. On the other hand rural development is specific compared to agricultural
development in the sense that it focus particularly on poverty and inequality or rural poor.

The concern of rural development is reduction of inequalities in income and employment,

and in access to public goods and services and alleviation of poverty. Rural development
is concerned with economic, social, political and environmental development in rural
areas. Rural areas are understandably defined to be areas outside the jurisdiction of urban
municipalities. Rural can also be understood as a spatial expanse where the main
economic activities are agriculture, handicrafts, services and trading.

Activity –2
1. How has rural development gained importance as a subject?
____________________________________________________________
____________________________________________________________
____________________________________________________________
___
2. Define the concept of rural development
____________________________________________________________
____________________________________________________________
____________________________________________________________

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 Section Five

Aims and Components of Rural Development

Section Overview
Dear students, in the preceding section we have discussed that conceptualization of the
notion of rural development is seems to be difficult. However, its essence should be
oriented towards addressing some societal problems. Therefore, in this section you will
be learning about the objectives and components of rural development.

Section Objectives
After the successful completion of this section, you will be able to;
 Identify the aims of rural development
 Explain the components of rural system

5.1 Aims of Rural Development

?Dear student, what are the aims of rural development?

Rural development aims at progressive improvement of levels of living achieved through
mainly increased small farm and non-farm income, output and productivity. The
objectives of rural development include sustained increases in per capita output and
incomes, expansion of productive employment and greater equity in the distribution of
the benefits of growth.

Rural development may also refer to process of change in rural societies, not all of which
involves action by government. This broadens rural development to refer to agrarian
change that involves changes in the total systems of relationships in agrarian economics
and societies. This nature of development therefore demands an interdisciplinary

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approach in which the broader social and political factors interacting with economic
process are subjected to examination.

Whatever be the differences in conceptualizing the notion of rural development, there is a

widely shared view that its essence should be poverty alleviation and distributive justice
oriented economic transformation. Given such a view, you may have the primary
objectives of rural development
 To improve the living standards by providing food, shelter, clothing,
employment, and education
 To increase productivity in rural areas and reduce poverty
 To involve people in planning and development through their participation in
decision ,making and through decentralization of administration
 To ensure distributive justice and equalization of opportunities in the society

5.2 Components of Rural Development

?Dear student, can you list down the components of rural system?
Rural development, as a system, involves technological and environmental factors and
relationships as well as social and cultural ones. A wide range of process affects such
system and may contribute to bringing about changes within them. Thus, the components
of rural system include.

(i) Natural environment: it comprises all natural components like land/soil,

vegetation, animals, minerals, water, air etc.
(ii) Technologies, that are employed to in order to make used of natural resources
and other resources to achieve development purposes.
(iii) Population or demographic factors, comprising density of population and
trends of population growth.
(iv) Economic factors, involving production, markets, and connection of rural
economy and the rest of the national economy and world markets and

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 (v) Social structures of rural society and producers along with values or culture
(e.g. tenants, landless, landowners etc.)

Development and growth in rural areas must be considered although in the long run the
development of the growing population would depend on the expansion of the modern
sector (industrial manufacturing and service sectors). This implies the importance of
greater link between the modern urban sector and the traditional rural sector in terms of
increased trade in farm product and in technical inputs and services, and consumption
goods and services. In this connection, apart from direct tackling with rural poverty,
modern sector development and sound macroeconomic policies are important.

Activity-3
1. Identify the aims of rural development
____________________________________________________________
____________________________________________________________
____________________________________________________________
___

2. List down the components of rural system

____________________________________________________________
____________________________________________________________
____________________________________________________________
___

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 Section Six
The Rural Poor and Poverty

Section Overview
Dear students, in the preceding section you have learnt about the principal aims and
components of rural development. The focus now is on the rural poor.In this section you
will be able to learn about the meaning and characteristics of the rural poor and poverty.

Section Objectives
After the successful completion of this section, you will be able to;
 Define the meaning of rural poor
 Explain the concept of poverty
 Understand the nature of rural poverty

6.1The Rural Poor

?Dear learner, what are the targets of rural development?

Rural development targets at reducing poverty and human misery in rural areas by
increasing the productivity and income of low-income rural workers and households, and
providing them with access to goods and services. Operationally, the concept of rural
development requires that target groups be identified among the rural poor, for whom
specific measures to rains production and income can be designed and in whose case the
resulting flow of benefits-direct and indirect is both identifiable and potentially
measurable. Focus may be necessary on special groups of the rural population in terms of
whose well-being, policy actions and programs can be designed and evaluated. This may
in turntarget at income necessary to cover minimum nutritional requirements and
essential non-food expenses. Thus the operational goals of rural development include
improved productivity, higher income, minimum and acceptable levels of rural
development include improved productivity, higher income, minimum and acceptable
levels of food, shelter, education and health services.

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Fulfillment of these objectives calls for an expansion of goods and services available to
the rural poor, and for institutions and policies that will enable them to benefit fully from
the whole range of economic and social services.

?Dear student, who are,therefore the rural poor?

The rural poor are those individuals and groups in rural areas who are vulnerable to
poverty, considering basic needs (nutrition, housing, health and education) into account.
There is a wide range of social groups who are considered to be poor in Africa, and
particularly in Sub-Saharan Africa. These include:

(i) The landless who are unemployed, labourers, semi-skilled wage labourers, or
informal sector workers;
(ii) Subsistence or peasant farmers who are dependent on their own production for
their subsistence. The group is exposed to various conditions of uncertainty
and risks. Semi-commercial farmers or tenants are also exposed to risks
falling into poverty;
(iii) Pastoralists and agro-pastoralists, who are also vulnerable to vagaries of
weather, and have poor access to information and services;
(iv) Salaried employees and self-employed in rural areas. The group includes civil
servants, retailers, school teachers;
(v) The unemployables, a group that includes children, old and the infirm
persons;
(vi) Refugees and squatters;
(vii) Open access traditional fishermen, hunters and plant gatherers.

In general, poverty has its main roots in the structure, process, and mechanisms which
determine or govern the:Ownership, distribution and exchange, and utilization of assets
and production factors; Structure of political power;Structure of inequality and
inefficiencies, and;Structure of opportunities and possibilities.

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 6.2Poverty,its Manifestations and Measurement

?Dear student, what is poverty?

It is difficult to provide precise definition or what poverty is. Schuber (1992) provided a
universally quoted definition of poverty is the inability to lead a decent life, Of course
what is a decent life raises a number of questions and issues. Some other authors
understand poverty as a state of individual or household having an income or
consumption below a certain standard, usually known as poverty line. In this sense what
exists in Africa chronic mass poverty. According to Lamin (2000) mass poverty as it
exists in Africa is a process whereby the bulk of the population is; surviving at the daily
subsistence local dietary requirement; housed in squatter-type shelters; clothed with bare
minimum protective clothing; without the means to acquire productive assets; with very
low organizational capabilities and participatory role, and with inadequate endowment of
energy supplies for productive and other uses. Poverty can also be conceived as a
situation consisting of deficiency in consumption; high level of morbidity and mortality;
poor sanitary and housing conditions; low levels of education. In this situation, the
magnitude of ignorance and dependency and the prevalence of diseases precludes the
poor from effectively responding to the demands of and participating in, the economic,
social and political life of their societies.

World Development Report (2001) identified four major dimensions of poverty that may
interact and reinforce with each other the first is the material deprivation (lack of
opportunity), which is measured by an appropriate concept of income or consumptions,
the second is low achievement in education and health (low capabilities), the third is
vulnerability (low level of security) and the fourth is voicelessness (powerlessness).

In order to define population into poor and non-poor, one may need a cut-off line (or
poverty line) below which a person is classified as poor, for the purpose of which welfare
indicators are used in the definitions of poverty line. Three alternatives approaches,
namely absolute, relative and subjective, are used in setting a poverty line.

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6.2.1 Absolute Poverty

?Dear student, what do you mean by absolute poverty?

Absolute poverty can be viewed as the inability to secure the minimum basic needs for
human survival (World Bank, 1990). Absolute poverty is a poverty thresh-hold below
which living becomes mere physical survival. It is a state of existence in which the
overall needs of the individual is not satisfied due to lack of enough purchasing power or
means of self-provisioning (food, shelter, clothing, health etc.). It is a condition where
deprivation is so severe that the basic needs of life can scarcely be met at the minimum
level required for survival, A person is considered to be in absolute poverty if he/she
lacks resources to obtain enough food, clothing and warmth, and shelter to maintain a
tolerable standard of physical health and efficiency, In defining absolute poverty lines,
welfaristic framework compares welfare and public policy decisions on the basis of
preferences (utilities) of individuals, while the non-welfaristic approach is usually based
on the basic needs or minimum caloric requirements.

Accordingly there are two commonly used methods of defining poverty lines. These are:
(i) direct caloric intake method, which defines poverty as consumption below the
minimum caloric intake. Hence this method equates poverty with malnutrition. The
drawback of this method is that it does not take into account non-food requirements and
the cost of getting the basic caloric requirements. Measuring poverty by calkorikc intake
only is unlikely to reveal the extent of impoverishment given that poverty is lack of
command over basic goods and services including food. (ii) Cost of basic needs method
is the common and practical way of measuring absolute poverty. It involves first defining
the food poverty line by selecting a basket of food items typically consumed by the poor.
This is then augmented by modest allowance for non-food goods. CBN provides a
monetary value of a poverty line that accounts for the food and non-food components.
CBN is expressed as: Z=Cf +Cnf, where Z is the poverty line, C fis the minimum cost of
food, and Cnf is minimum cost of non-food items.

24
6.2.2 Relative Poverty

?Dear student, what is a relative poverty?

Relative poverty is a state of having welfare level (measured in income or expenditures or
other wellbeing indicators) less than others. This does not involve those people who live
a life standard of below the poverty line. Thus, the relatively poor are those whose
incomes are low compared to others even if they secure adequate level of survival. Thus,
relative poverty is a global phenomenon reflecting the existence of inequality.

Relative poverty points to that some people are poorer than others. It is recognized as a
problem when the difference between the richest and the poorest is intolerable in the
sense that, the poor while not actually destitute or starving, are nevertheless deprived of
many of the goods and services which others take for granted. Relative poverty is thus,
associated with inequality, as one of the poverty dimension.

The procedure of relative poverty measuring involves disaggregating the population into
various income or expenditure percentiles and then subjectively labeling the lowest ‘X’
percentage of the population as the poor.

The approach in general suffers from the following weaknesses:

 It lacks clarity as to whether it is an indicator of poverty or measurement of
income inequality;
 It is entirely dependent on the value judgment of the researcher that it is difficult
to monitor poverty over time and space;
 The relative poverty line is arbitrary and always assumes a constant percent of the
population in the bottom as poor, even if living standards for the whole population
have risen over time;
 The method is technically feasible for developed countries, and is less important
for developing countries whose bulk of population lives in absolute poverty.

25
6.2.3 Subjective poverty

?Dear learner, what do understand by subjective poverty?

The concept of subjective poverty is based on the premise that people are the best judges
of their own situation and that their opinions should ultimately be the decisive factor in
defining welfare and poverty. It implies that that poverty is subjective judgments people
place on what constitutes a socially acceptable minimum standard of living in their-own
societies. In this case subjective poverty measures are therefore based on responses of
individuals to attitudinal questions on household income and welfare like what level of
income do you personally consider absolutely minimal. It involves opinions of
households whether their income is sufficient to meet their needs or ends.

In general, however, although poverty could be explained in absolute, relative and

subjective terms, experience and applied research have indicated that the most relevant
and widely used definition of poverty especially for developing countries is absolute
poverty line. Similarly, although both income and consumption (expenditures) measures
are used to measure welfare or utility status, expenditure method is a widely used and
recommended criterion of welfare, for the following reasons:
 Consumption expenditures reflects the purchasing power of households better
than measured current income because recorded income during a survey may
be distorted by transitory poverty situation;
 Measuring income is more problematic than measuring consumption,
especially for rural households whose income comes largely from self-
employment in agriculture;
 Given that annual income is required fro a satisfactory measure of living
standards, and income-based measure requires multiple visits or the use of
recall data, where as consumption measures can rely on consumption over the
previous few weeks;
 In developing countries setting households are likely to underreport their
income level more than they do with their consumption level

26
6.3Rural Poverty Unperceived

?Dear student, why has rural poverty gone unnoticed?

The extremes of rural poverty in the third world are an outrage. The outrage is not just
that avoidable deprivation, suffering and death are intolerable; it is also that these coexist
with affluence.

Many biases impede outsiders’ contact with rural poverty in general, and with the deepest
poverty in particular. According to R. Chamber, six sets of biases stand out:

i) Spatial biases: Urban, tarmac and roadside

Most learning about rural conditions is mediated by vehicles. Starting and ending in
urban centers, visits follow networks of roads. With rural development tourism, the
hazards of dirt roads, the comfort of the visitor, the location of places to visit and places
for spending the night, and shortages of both time and fuel dictate a preference for tarmac
roads and for travel close to urban centers. The result is overlapping urban, tarmac and
roadside biases.

Urban bias concentrates rural visits near towns and especially near capital cities and large
administrative centers. But the regional distribution of the poorest rural people often
shows a concentration in remoter areas. Tarmac and roadside biases also direct attention
towards those who are less poor and away from those who are poorer. Visible
development follows main roads. Factories, offices, shops and official markets all tend to
be at the sides of main roads.

ii)Project bias
Rural development tourism and rural research have a project bias. Those concerned with
rural development and with rural research become linked to networks of urban-rural

27
contacts. They are then pointed to those rural places where it is known that something is
being done-where money is being spent, staff are stationed, a project is in hand.

The project bias is marked with the showpiece: the nicely groomed pet project or model
village, specially staffed and supported, with well briefed members who knew what to
say and which is sited a reasonable but not excessive distance from the urban
headquarters. Governments in capital cities need such projects for foreign visitors; district
and sub-district staffs need them too, for visits by their senior officers. Such projects
provide a quick and simple reflex to solve the problem of what to do with visitors or
senior staff on inspection. Once again, they direct attention away from the poorer people.

iii) Person biases

The persons with whom rural development tourists, local-level officials, and rural
researchers have contact, and from whom they obtain impressions and information, are
biased against poorer people.

a)Elite bias. ‘Elite’ is used here to describe those rural people who are less poor and
more influential. They typically include progressive farmers, village leaders, headmen,
traders, religious leaders, teachers and paraprofessionals. They are the main sources of
information for rural development visitors, for local-level officials, and even for rural
researchers. They are the most fluent informants. It is they who receive and speak to the
visitors; they also articulate ‘the village’s’ interests and wishes; their concerns which
emerge as ‘the village’s’ priorities for development. It is they whoreceive the lion’s share
of attention, advice and services from agricultural extension staff.

Conversely, the poor don’t speak up. With those of higher status, they may even decline
to sit down. Weak, powerless and isolated, they are often reluctant to push themselves
forward. The poor are a residual, the last in the line, the most difficult to find and the
hardest lo learn from. Unless paupers and poverty are deliberately and persistently
sought, they tend to remain effectively screened from outside inquirers.

28
b) Male bias. Most local-level government staff, researchers and other rural visitors are
men. Most rural people with whom they establish contact are men. Female farmers are
often neglected by male agricultural extension workers. In most societies women have
inferior status and are subordinate. More so, rural single women, female heads of
households, and widows include many of the most wretched and unseen people in the
world.

c) User and adopter biases.Where visits are concerned with facilities or innovations, the
users of servicers and the adopters of new practices are more likely to be seen than are
non-users and non-adopters. This bias applies to visitors who have a professional interest
in, say, education, health or agriculture, to local-level officials, and to researchers. They
tend to visit buildings and places where activity is concentrated, easily visible, and hence
easy to study.

Children in school are more likely to be seen and questioned than children who are not in
school; those who use the health clinic more than those who are too sick, too poor, or too
distant to use it; those who come to market because they have goods to sell or money
with which to buy, more than those who stay at home because they have neither;
members of the cooperative more than those who are too poor or powerless to join it.

d)Active, present and living biases. Those who are active are more visible than those
who are not. Fit, happy children, not those who are apathetic, weak and miserable. Dead
children are rarely seen. The sick lie in their huts. Inactive old people are often out of
sight. Those who are absent or dead cannot be met, but those who have migrated and
those who have died include many of the most deprived.

iv) Dry season biases

Most of the poor rural people in the world live in areas of marked wet-dry tropical
seasons. For the majority whose livelihoods depend on cultivation the most difficult time
of the year is usually the wet season, especially before the first harvest. Food is short,
food prices are high, work is hard, and infections are prevalent. Malnutrition, morbidity

29
and mortality all rise, while body weights decline. The poorer people, women and
children are vulnerable. The wet season is also the unseen season.

v) Diplomatic biases: Politeness and timidity

Urban-based visitors are often deterred by a combination of politeness and timidity from
approaching, meeting, and listening to and learning from the poorer people. Poverty in
any country can be a subject of indifference or shame, something to be shut out,
something polluting, something to be repressed. If honestly confronted, it can also be
profoundly disturbing. Those who make contact with it may offend those who are
influential. The notables who generously offer hospitality to the visitor may not welcome
or may be thought not to welcome, searching questions about the poorer people. Senior
officials visiting junior officials may not wish to examine or expose failures of
programmes intended to benefit the poor. Politeness and prudence variously inhibit the
awkward question, the walk into the poorer quarter of the village, and the discussion with
the working women. Courtesy and cowardice combine to keep tourists and the poorest
apart.

vi) Professional biases

Finally, professionaltraining, values and interests present problems. Sometimes they
focus attention on the less poor: agricultural extension staff trained to advise on cash
crops or to prepare farm plans are drawn to the more ‘progressive’ farmers; historians,
sociologists and administrators, especially when short of time, can best satisfy their
interests and curiosity through informants among the better-educated or less poor; those
engaged in family welfare and family planning work find that bases for the adoption of
any new practices can most readily be established with better-off, better educated
families. But sometimes, in addition, professional training, values and interests do focus
attention directly on the poor. This is especially so in the fields of nutrition and health,
where those wishing to examine and to work with pathological conditions will tend to be
drawn to those who are poorer.

30
  Activity–4

1. Who are rural poor?

_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
___

2. Define the concept of poverty

_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
___

3. Why has rural poverty gone unnoticed?

_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

31
 Section Seven

Agriculture and Rural Development

 Section Overview
Dear student, agriculture is the mainstay of the rural economy in developing countries. Its
contribution for rural development is of immense importance. This section is, therefore
going to deal with the meaning, invention and contributions of agriculture.

Section Objectives
After the successful completion of this section, you will be able to;
 Define the meaning of agriculture
 Identify the contributions of agriculture
 Analyze the evolution of thinking about agriculture

7.1 Definition of Agriculture

?Dear student, what do you think agriculture is?

The word agriculture is used for such a broad range of activities that it is difficult to find
a satisfactory definition. Literally speaking,agriculturemay refer to the
art, science, and industry of managing the growth of plants and animals for human use. In
a broad sense, agriculture includes cultivation of the soil, growing and harvesting crops,
breeding and raising livestock, dairying, and forestry.

Agriculture can be understood as the life of the rural population in which production is
intimately bound to consumption. Alternatively, agriculture is seen as an occupation or
profession from which to derive a livelihood. Hence, agriculture is an industry or
business employing knowledge of the various sciences for the production of food, feed,
fiber and fuel.

32
A useful working definition is to regard agriculture as purposeful work through which the
elements in nature are harnessed to produce plants and animals to meet human needs. It is
a biological production process which depends on the growth and development of
selected plants and animals within the local environment.

Under natural conditions, plants and animals grow and develop without human influence.
Agriculture has evolved in response to human need for increased food production for a
growing population. People began to exploit the growth of plants and animals in order to
produce the type and quantity of food and other products that met their requirements.
Plants are the primary producers in agriculture and animals are secondary agricultural
producers.

?Dear students, what do you know about the invention of agriculture?

Agriculture is the oldest and largely primary industry. It was invented by the early
peoples after prolonged observation of plant and animal life in their natural habitats. The
people developed skills for planting and harvesting useful plants and taming some of the
wild animals. The invention of agriculture was followed by land settlement increases in
human population and the development of arts and crafts. The invention of agriculture
can thus be regarded as the most important historical development of the human race.

Although the industrial revolution may have superseded agriculture, nevertheless, the
rapidly evolving industrial and commercial world of today depends on continued
agricultural development to supply the basic needs at the labor force and for some raw
materials.

33
7.2 Contribution of Agriculture in Tropical Countries

?What are the contributions of agriculture?

Agriculture plays a vital role in the economics of tropical developing countries in the
following major ways:

i) Food production
The first contribution that agriculture makes is the supply of food. Most of the food
consumed in a country is produced by farmers.

ii)Livelihood
Agriculture is also a major source of livelihood, generating employment for over two-
thirds of the labor force in Sub-Saharan Africa (SSA). The increasing demand for
agricultural products results in an increase in the level of agricultural activity. This means
that many more people will become employed in the agricultural industry as farmers,
crop processors, traders, middlemen and transporters. In this way, agriculture provides
employment, especially in rural areas. It also provides jobs for research scientists,
administrators, teachers, bankers and politicians.

iii)Assistance to Industry: Market and raw materials

Agriculture provides a market, both directly for inputs, machinery and processing
equipments and indirectly by virtue of the expenditure of agricultural workers. It also
provides raw materials for nascent (emerging) industry, for example textile. Many
industrial raw materials are agricultural products. For instance, vegetable oils, rubber,
textile, canning and soap manufacturing industries use agricultural products as raw
materials. Forest products supply 75% of the world requirements for fuel, housing, tools,
transport, reading and writing and packaging materials. Agriculture provides the food
needed to feed the industrial workers, and serves as a large consumer market for
industrial products such as plastic shoes, bucket, fertilizers, pesticides, agricultural tools

34
and machinery, building and construction materials, trucks, lorries, boats and many
others. The agricultural industry of a country therefore is an important consumer for the
country’s other products.

iv)Foreign exchange
Agriculture generates foreign exchange, which can be used to purchase capital equipment
and intermediate goods for the agricultural sector. Agricultural products are therefore a
major source of domestic and international trade which provides revenue for the
government and people of a country. Increased agricultural production enables many
farmers to become rich and pay more taxes. Government revenue, then, increases and
more funds become available for development projects like education, health,
manufacturing industries, roads and communications. International export trade in
agricultural products such as cocoa, palm produce, rubber, coffee, cashew, copra, sugar
cane and bananas provides producing countries with the foreign exchange they need to
pay for essential goods like motor cars, trucks, radios and television equipment and
educational materials which they don’t produce locally.

v)Surplus
A final contribution of the agricultural sector, especially for low-income countries where
the sector is dominant, is that it provides the most important, sometimes, the only real,
source of savings or investible surplus needed for growth. Farmers save and invest in
their communities. In rare cases, their cash savings may be mobilized by the banking
system for investment elsewhere. More commonly, however, governments look to the
agricultural sector as a source of tax revenue to fund the public budget.

7.3 The Evolution of Thinking about Agriculture

A simplified chronology is presented in Table 1belowto make the point that thinking
about agriculture has almost always reflected thinking about development more
generally. The period since the Second World War can be broken down into decade-long
periods, in which the thinking about agriculture and, accordingly, the priority given to
different agricultural objectives, has differed substantially.

35
 Table 1.The evolution of thinking about agriculture (1950s – 1990s)

Period Dominant development paradigm Agricultural Strategy

1950s Growth through industrialization Community Development
1960s Growth through industry and agriculture Green Revolution
1970s Redistribution with growth &basic needs Integrated Rural Development (IRD)
1980s Structural adjustment NGO/ Emergency Relief
1990s Poverty reduction Small-scale credit/banking relief and
development

In the 1950s, the dominant development paradigm focused on growth through

industrialization. It was rooted theoretically in the Lewis model of economic
development with unlimited supplies of labor. In this model, the rural sector was seen
principally as a source of labor and of surplus to finance industrialization. It was a place
where the ‘reserve army’ of the unemployed could engage in subsistence agriculture until
its labor was required in more productive sectors. With that world view, therefore little
attention was given to agricultural development, and the primary focus of rural
intervention was on commodity development movement, that is largely on social welfare
interventions.

The Community Development Programme (CDP) was the major rural development
programme launched in the 1950s with the following major objectives:
 To secure total development of the material and the human resources in rural
areas
 To develop local leadership and self governing institutions
 To raise the living standards of the rural people by means of rapid increase in
food and agricultural produce, and
 To ensure a change in the mind-set of people instilling in them mission for
higher standards

36
In the 1960s, the dominant development paradigm changed, largely as a result of the
thinking about agriculture already referred to. The emphasis was still on growth of
national income, but it was seen that agriculture could contribute to growth. A more
positive attitude was greatly assisted by the spread of the Green Revolution, first in
Mexico and then in South Asia. This demonstrated that agricultural productivity would
increase rapidly if the right combination of seeds, inputs and water control was provided.

The green revolution by its very nature was selective and target specific strategy. It was
primarily directed towards regions with favourable “initial conditions”, such as irrigation
facilities. The green revolution was intended to provide a breakthrough in agricultural
production and yield.

In the early 1970s, attention began to move away from Gross National Product (GNP) per
capita as a measure of development, towards more complex indicators which took
poverty into account that remained largely unheeded. Redistribution with growth became
an important theme thereof. The concern with poverty led to a better understanding of
basic needs and to multi-sectoral programmes designed to operate across a range of
productive and non-productive sectors.

As a concept, the term “integrate rural development” has gained widespread acceptance
in spite of the faire amount of disagreements among rural development experts in
defining the concept. In spite of the disagreement, however most schools of thought
emphasis certain basic elements of rural development. The rural economy and social
structure in most developing countries is characterized by widespread poverty, poor
health conditions, illiteracy, exploitation, inequitable distribution of land and other assets,
and lack of rural infrastructure and public utilities (roads, communications etc). Clearly
this meant that the problem requires an approach that will take into all these factors in
devising a comprehensive strategy to further equal rural development.

The concept of “integrated rural development” came into vogue with the need for a multi-
purpose thrust to rural planning.It stresses that various facets of rural development, which

37
have an impact on rural life, are interrelated and cannot be looked at in isolation. Thus, an
integrated approach towards rural development is essential. The various dimensions of
rural life-growth of agriculture and allied activities, rural industrialization, education,
health, public works, poverty alleviation and rural development programmes- all for a
part of an integrated approach to the problem of rural development.

The basic needs approach was dealt a body blow by the second oil crisis in 1979, and by
the subsequent recession, and fall in commodity prices. The financial austerity which
followed was a practical cause of debt crisis; but it also highlights the difficulty of
funding the recurrent costs of large social programme like those launched under a basic
needs or integrated rural development banner. It seemed that too much attention had been
paid to the question of how to divide the cake and not enough to that of how to make the
cake bigger.

There was, thus both a practical reason and a theoretical underpinning for new thinking in
development, and this rapidly developed as a neo-liberal structural adjustment program in
the 1980s. From an official perspective, production was once more the dominant
objective, but this time the government intervention was to be kept to a minimum.
Poverty was not entirely neglected, however, and non-governmental organizations
(NGOS) were encouraged to fill the vacuum left by donors and states. The other
dominant feature of the 1980s, especially in Africa, was the impact of drought and the
consequent rapid rise in emergency relief needs.

The 1990s saw another sea change, with the publication of the World Bank’s World
Development Report on poverty in 1990, and the first of United Nations Development
Programmes (UNDPs) Human Development Reports. These two together helped to
redefine the development paradigm, putting poverty reduction back at the center of the
argument. To this end, the World Bank advocated a three-pronged strategy of;
 Labor-intensive growth
 Human capital development through the provision of health and education
 Safety nets to guard against destitution

38
Since the majority of the poor live in rural areas, this turned the spotlight back onto
agriculture and rural development. There was little enthusiasm for the large scale
integrated rural development program that has characterize the 1970s, but small scale
credit programmes became popular, following the Grameen Bank model. In areas where
emergency relief had become almost continuous there was a wave of interest in using this
flow of resources to help reduce vulnerability and encourage faster development.This
became known as linking relief and development.

The Grameen Bank was started in 1983 in Bangladesh as a public sector credit institution
to supply credit to the rural landless and those with holdings less than 0.5 acres (0.2 ha).
The process of this scheme has been rapid and its impact on the rural population in
generating income and covering the target population has been very high,

All in all, the chronology in Table 1 above is obviously an over simplification. In

particular, it leaves out of the account the radical critiques of the dominant ideology,
notably those concerned with capitalist inter-relationships and dependency on a world
scale. Nevertheless, the chronology illustrates the parallel evolution of dominant
development paradigms and thinking about agriculture and also serves to make the point
that different possible objectives of agriculture have been prominent at different times.

39
  Activity–5

1. What is agriculture?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

2. Explain the invention of agricultural practice

__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

3. What are the contributions of agriculture?

__________________________________________________________________________
__________________________________________________________________________
_________________________________________________________________________

4. Explain the evolution of thinking about agriculture

__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

40
 Unit Summary
Dear students, in this unit you have learned that though development is a value-laden and
subjective concept, it refers to a multidimensional process and an overall positive societal
change. An emphasis has also been placed on the concept of rural development. The
notion of rural development has been conceived in diverse ways by researchers, ranging
from thinking of it as a set of goals and programs to an integrated strategy, approach, or
even an ideology. Moreover, you have also learned that the objectives of rural
development include sustained increases in per capita output and incomes, expansion of
productive employment and greater equity in the distribution of the benefits of growth.

In this unit, the attributes of rural poor and poverty were dealt with. Accordingly, the
rural poor are those individuals and groups in rural areas who are vulnerable to poverty,
considering basic needs (nutrition, housing, health and education) into account.It is
difficult to provide precise definition or what poverty is, but a universally quoted
definition of poverty is “the inability to lead a decent life”.

Focus was also given to agriculture. We have said that, agriculture refers to the
art, science, and industry of managing the growth of plants and animals for human
use.Agriculture plays a vital role in the economics of tropical developing countries.

41
Check List
Direction:Dear students this is the section in which you confirm your understanding
of the lessons in this unit. Put a tick mark ( ) in the yes column for activities that you
have clear understanding and in the no column for activities that you doubt that you
have no good understanding so that you can go back to the lesson and learn again.

I Can: NoYes
 Define the concept of development;
 Explain the concept of rural development;
 Explain the aims and analysis of rural development
 Clarify the meaning of rural poor
 Analyze the relationship between agriculture and rural
development

Self test exercises

Part I: Choose the best answer from among the given alternatives

1. From among the following which one could not be a definition of development?
A. It implies an economic change.
B. It implies an overall positive change.
C. It implies a qualitative improvement of well-being.
D. It is a qualitative concept involving a qualitative improvement in well-being.
E. A and C.

2. Suppose that the bulk majorities of population in a certain area prefer commodity ‘X’
over commodity ‘Y’ because the ‘former’ maximizes their utilities (well-being) than

42
 the ‘latter’. Thus, according to_________ measurement, those people who are not
able to get commodity ‘X’ are in a state of poverty.
A. Subjective D. Welfaristic
B. Non-welfaristic E. ‘B’ and ‘C’
C. Relative

3. Subjectively poverty is being viewed as the state of conditions in which people are
the best judges of their own situation. Thus, invariably relying on the above definition
of poverty seems to hide the real problems in light of Ethiopian existing situation,
because
A. People unwillingness to disclose their status
B. People decision influenced by culture
C. Poverty is viewed only as mere wrath (anger) of God
D. Lack of self-confidence for poverty is but a shameful act
E. All

4. Researcher’s mere preference of all-weather surface (roads) is one feature of the

unobserved nature of rural poverty. According to Robert Chamber, it is called____
A. Professional bias D. Dry-season bias

B. Project bias E. Person Bias

C. Spatial bias
5. What is wrong with using income per capita as the principal indicator of well-being?
A. It ignores the inequality in the distribution of national income.
B. It overlooks distributive justice.
C. It doesn’t have any problem.
D. A and B.
E. None

43
6. Which one of the following is not among the major dimensions of poverty
A. Lack of opportunity D. Powerlessness
B. Low capabilities E. None
C. Low level of Security
7. For Jamaican poverty is lack of self-confidence, but for Bangladeshi, well-being is to
have a life free from anxiety. This entails the_____ attribution of poverty.
A. Absolute D. Universal
B. Relative E. Objective
C. Subjective
8. Suppose a researcher have found some unrealistic result while conducting a study
(research) to investigate the welfare status of Ethiopian farmers, by taking income as
the principal variable. The most plausible explanation for this unrealistic result could
be:

A. Income coming largely from self-employment in agriculture is difficult to

record.
B. Income-based measures are expensive.
C. Households are likely to underreport their income level.
D. A and C
E. None
9. The most relevant and widely used definition of poverty especially for developing
countries is
A. Subjective perception D. A and C
B. Absolute poverty line E. None
C. Relative definition
10. In the 1950s, the dominant development paradigm was focused on growth through
industrialization. What was the preferred agricultural strategy_____?
A. Green revolution D. Emergency relief
B. Community Development E. Small scale credit
C. Integrated Rural Development

44
Part II. True or False
__________1. Relative poverty measurement is more convenient for developing
countries than advanced nations.
_________2. Income is a vital component of Human Development Index (HDI).
_________3. There is no any controversy in the definition of poverty as the inability to
lead a decent life.
_________4. The primary contribution that agriculture makes is to the realization of
livelihood security in Africa

Part Three: Fill in the blank space

1. Rural development as a strategy is designed to improve the economic and social life of
people specifically known as________________________
2.__________________________ is the common and practical way of measuring
absolute poverty that involves defining the food poverty line by selecting basket of food
items and non-food goods typically consumed by the poor.

45
 UNIT TWO

PERSPECTIVES OF RURAL DEVELOPMENT

Introduction
Dear student, welcome to unit two of this module. The unit is about the different
perspectives of rural development. Rural development under the contexts of developing
countries hinges upon eliminating absolute poverty and inequity within the framework of
sustainable and relations which either cause rural families inability to adequately provide
for themselves or limit the purchasing power of rural dwellers, or prevent rural dwellers
from having easy access to the essential goods and services. Both the primary sources of
poverty generating variables such as assets, occupation, employment, wages,
demographic factors; and characteristic variables such as income, health and status, all
interact to constitute the overall process of rural underdevelopment or poverty
generation.Dear students, there is no universal theory of rural development. There are
only hypotheses and propositions that constitute higher level of generalizations in the
field of development.

Accordingly, this unit is divided into four major sections. The first section elaborates the
arguments and critics of modernization theory. The Lewis model of economic
development is the focus of section two. In section three, you are going to deal with the
dependency theory of development. Finally, the last section deals with the human capital
model of development.

46
Unit Objectives

After completing this unit, you are expected to:

 Explain the assertions and critics of modernization theory
 Analyze the arguments of Lewis model of economic development with unlimited
supplies of labor
 Explain the arguments of the dependency theory of development
 Elaborate the theory of human capital model of development

ðPre-test Questions
 What are the arguments of modernization theory?
 Do you have any idea about the dependency theory of development?
 What assertions put forth by Lewis?
 How do proponents of human capital model attribute the realization of rural
development?

47
 Section One

The Modernization Theory

µ Section Overview
Dear student, welcome to the first section of this unit. It is about modernization theory.
The argument posed by proponents of modernization theory is the principal focus of this
section. But, dear student, this theory is not infallible. The critic pointed against
modernization theory is also the other focus of this section.

Section Objectives

Upon the completion of this section, you will be able to:

 Analyze the arguments of modernization theory in light of their view on rural
development
 Identify the criticism forwarded against modernization theory

1.1 Introduction

Rural development is a complex process requiring a complex approach that considers

different dimensions of rural economic and social milieu. There is no universal theory of
rural development. There are only hypotheses and propositions that constitute higher
level of generalizations in the field of development. In the 18 th and 19th centuries classical
economists like Adam Smith, David Ricardo, Thomas Robert Malthus, John Stuart Mill
and Karl Marx who were concerned with economic growth and development pioneered in
development thesis and propositions, upon which further expansion and new perspectives
were developed in subsequent periods. The existing rural development perspectives are
hinged upon the general development perspectives. Generally, the common development
perspectives may emphasize one more of the following general lines of approach.

48
? Dear learner, what are some of the common development perspectives?
(i) Reductionist approach: reducing the development condition to one
dimension, usually economic in nature;
(ii) Residual approach: attacking not the system, but these elements or
individuals who do not benefit from development. The residual treatment rests
on the assumption that the origins of the poverty or development problem lie
in some pathology in the individuals, or in the way individuals relate within
the social environment;
(iii) Incremental approach: Minimizing the magnitude of change undertaken
and limiting the context within which it is taken. It begins with the acceptance
of the basic system of distribution of assets within the society and the
initiation of policy interventions, which seek to make only marginal changes
within that system.
(iv) Structuralist approach: It starts with the examination of the process
itself, and examines interrelationships of people and natural environment, and
relationships of people in production process. It places the ownership and
control of resources at the center of analysis, and considers the historical
analysis of commoditization.
(v) Systems approach: The approach implies a holistic analysis. It
emphasizes systemic relationships of environmental, demographic and
technological conditions and social responses to them within the
rural/agricultural systems.

Dear student, our discussion of rural development perspectives will be handled within the
framework of two distinct schools of thought on development: modernization theory and
dependency theory. In each school different models ofdevelopment can be identified.

49
1.2 The Modernization Theory

? Dear learner, what is modernization theory all about?

This is a broad school of thought. Rural/agricultural development thinking until mid

1970s was dominated by the concept of modernization. Introduction of new often western
technology and management practice, sometimes accompanied by changes in size and
structure of landholdings, with intention of emulating patterns of agricultural
development which had evolved in developed countries. There is no single model of
modernization.

1.2.1 Characteristic concepts of modernization

The world is dichotomized into modern and traditional. The rural economy in developing
countries is traditional dominated with traditional or peasant farming or subsistence
oriented agriculture and handicrafts and poor markets. According to modernization
perspective, the traditional economy and agriculture need to be transformed intomodern
large-scale market-oriented agriculture employing modern technology transferred from
developed countries. Transfer is the central concept of modernization perspective.

In this perspective, agricultural development is envisaged to pass through stages of

growth as inevitable linear process emulating the historical process through which
agricultural development in developed countries has passed. The stage principle or
concept is used to organize transformation activities into institutional context. There is an
underlying notion of inevitability and linearity in the transformation process.

The transformation process is facilitated by transfer of technologies, know-how and

institutional models. Diffusion of improved ways of doing things through the adoption of
new practices and techniques for productive and research process is part of
transformation activities in the modernization framework. The essence of transfer of
western technology and rationality is facilitating modernization without radical and

50
revolutionary change of class structure in the development process, but only through
removal of social and ideological obstacles to such transformation process.

In the process of development, traditional social and political institutions would be

replaced by modern ones. Traditional feudal forms of political power will also be
replaced by democratic forms of governance. Urbanization along with technological
transformation of agriculture is an insight validated by the experience of the newly
industrializing East Asia and Southeast Asia.

In the context of rural development, the modernization perspective points out the
inevitability of technology for increasing production, the replacing of feudal institutions
by democratic ones, and the expansion of greater scientific temper, and secular values
and norms.

The transfer process is conceived to take place in two contexts: (a) new and improved
technology to be the heart of development and requiring more investment in the formal
research process. (b) transfer of institutional forms from modernizing countries for rapid
transformation of or development.

The emphasis is on transferring technologies and institutions rather than on strengthening

and improving what already exists. The transfers include, for example:
 Material transfer – chemical inputs, genetic materials etc.
 Cultivation practices (e.g. rice transplanting)
 Know-how and fixed designs (blueprints) for technology, institutions or
approaches to research.
 Technology generation capacity through institution building and technical
assistance.

51
1.2.2 The Criticism of Modernization Theory

? Dear learner, do you agree with all propositions of modernization theory?

The criticism of the modernization approach is that the transfer is not as such located
within the contexts of recipient countries. There is some ignorance that producers and
farmers in developing countries are experimenting in their own way for adaptation.
Understanding should be there that the transferred technologies should be compatible
with the opportunities and constraints faced by the produces and farmers applying the
technologies.

The perspective seems to underrate the importance of searching for type of technology
and the means of modifying them within the capacity of local formal and informal
Research and Development (R & D) systems. It undermines the existence of different
interest groups within communities and research systems with competing influences on
resource allocation.

This hierarchical transfer of technology model gives inadequate attention to feedbacks

from famers. The approach is centralist. The approach does not accommodate the
participation of stakeholders in the development and research process. The difficulty of
the approach is sharper when dealing with institution transfer (US Land Grant College
model, an institutional structure incorporation education, research and extension,
promoted by Point Four US program in 1950s). The institution transfer is elitist and
centralist and does not consider the indigenous social institutional contexts.

The modernization theory was not able to predict or explain: the faltering of the post
world war II boom in 1960s: and adverse environmental impacts of development. It does
not account the effect of the absence of effective control and implementation of rules and
regulations in developing countries, which is an important constraint to development of
trade, investment, business and markets and other developmental efforts.

52
However, an important refection of many authors is the need to understand the
advantages of multiplicity of actors on development of technology and institutions from
complex, diverse and risk-prone conditions of small-scale agriculture dominated rural
economy and society.

Activity–6
1. Discuss about common development Perspectives
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
___

2. What are the arguments forwarded by proponents of modernization theory?

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
___

3. What are the criticisms pointed against modernization theory?

__________________________________________________________________
__________________________________________________________________

53
 Section Two
Lewis Model of Economic Development with Unlimited
Supplies of Labor

µ Section Overview
Dear learner, this is section two of unit three. During the 1950s, Arthur Lewis put
forward a different theory of development. He tried to show how labor can be transferred
from the rural to the urban sector without adversely affecting productivity in the rural
sector. In this section, therefore you will get a detailed analysis of his assumptions.

Section Objectives

Upon the successful completion of this section, you will be able to:
 Analyze the basic assumptions of Lewis theory of development
 Identify the major critics pointed against the Lewis theory of development

2.1The Lewis Model of Economic Development with Unlimited Supplies

of Labor

? Dear learner, have you ever heard about Arthur Lewis model?

During the 1950s Arthur Lewis put forward a different theory of development. According
to Lewis, underdeveloped countries are characterized by the presence of two sectors:
 The traditional rural sector, which is of the nature of a subsistence economy,
providing for self-consumption within this sector. This sector also has a surplus
labor.
 The modern urban industrial sector where productivity is higher.

54
This model also falls within the framework of modernization theory. The economic
development model developed by W. Arthur Lewis (1954:139-92) is based on the fact
that in many developing countries, there exist large reservoirs of labor whose marginal
productivity is negligible, zero, even negative. The labor is available in unlimited
quantities, at a wage equal to the subsistence level of living, plus a margin subsistence
plus wage) sufficient to overcome the friction of moving from subsistence sector to the
capitalist sector. As the supply of labor is unlimited, new industries can be set up and the
existing ones can be expanded without limit, at the ruling wage rate.

? Dear learner, what is marginal productivity?

Accordingly, wages tend to be set at the point at which employers find it profitable to
engage the last job-seeking worker, who is called the marginal worker. Because, by the
principle of diminishing returns, the value of each additional worker's contribution to
production is supposed to diminish, growth of the labor force depresses wages. If wages
should rise above the level assuring full employment, part of the labor force would
become unemployed; if wages should fall below that level, competitive bidding by
employers for the additional workers would push wages up again.

Therefore, according to Lewis, since the marginal productivity of labor in the capitalist
sector is higher than the ruling wage rate, there results a capitalist surplus. This surplus is
used for capital formation, which makes possible employment of more people from the
subsistence sector. The increase in investment by the capitalist raises the marginal
productivity of labor, which induces capitalist employers to increase their labor force till
the marginal productivity of labor falls to level equivalent to the ruling wage rate. This
process goes on till the capital labor ration rises to the point where the supply of labor
becomes inelastic.

According to Lewis, the process of growth cannot continue indefinitely and must come to
an end on account of a number of factors. When this happens, the process of capital

55
formation can still be kept going by stimulating immigration or by encouraging export of
capital to countries which possess abundant supplies of labor at the subsistence wage rate.

To sum up, the basic premise of the Lewis model is that labor productivity in agriculture
must rise substantially in order to generate surplus in the form of food to be used for
development of the non-farm sector.

2.1.1 Shortcomings of the Lewis Theory of Development

? Dear learner, what do you think the weaknesses of the theory are?

Some critics have pointed out that Lewis’s optimism concerning development by
absorption of disguised unemployment from agriculture is unfounded, because it is not
possible to transfer a large number of workers permanently and on full-time basis from
agriculture to industry, without a drop in agricultural output, i.e. the marginal
productivity of labor in agriculture is not zero.

Technical progress in the capitalist sector may also increase the share of profits in
national income as long as there is surplus. The share of profits increases, both because
the profit ratio within a capitalist sector of a given size may increase through innovation,
and because the capitalist sector itself grows. Capital is created not only out of profit, but
also out of bank credit.

Moreover, the relevance of the model is constrained by a number of factors including:

 Labor unions may push the wager rate up as labor productivity increases, and
keep the rate of profit and rate of capital formation lower than expected;
 The capitalist employer may use the surplus for speculative or non-productive
purposes, instead of plowing it back for development purposes. The capitalist
industrialist may use capital- intensive technology instead of labor-intensive
technology that may pool labor from rural sector;

56
  To meet their rising expectations, rural people may consume more and save less
than predicted by the model, and thereby dampen the pace of development. At
times the existence of surplus is questionable, especially during times of peak
season activities.

The Lewis model failed to consider the possibility of change in productivity in

agriculture. Cochrane (1996) by reviewing the Lewis’ and Ranis-Fei models concludes
that the creation of investment capital needed to employ the surplus workers released
from agriculture is the critical missing element in the models. He then suggests the
resources to finance the expensive process of agricultural modernization can be obtained
in any one or in a combination of three basic ways: (i) by squeezing more agricultural
surplus; (ii) by slowing down the rate of investment in non-farm sector and in basic
infrastructure; and (iii) by obtaining foreign loans and grants. Of these three sources, the
foreign loans and grants are, he asserts, the least expensive. He further states that the
growth rate of agricultural production in a developing country in the early stages must be
raised high enough to meet its expanding food requirements. For this to happen, he
argues, the pool exerted on agriculture through higher market prices will not enough;
agriculture must be pushed and pushed hard, by a strategy emphasizing the use of modern
technology and supporting infrastructure and services. Singh (1999) add to the suggestion
made by Cochrane, arguing that no strategy of agricultural and national development
would ever succeed in the absence of appropriate population control measured, and a
congenial international economic and political environment.

Moreover, the model ignores the fact that unemployment is also fairly rampant in urban
areas as well as rural areas. This means that surplus rural labor cannot be meaningfully
absorbed by the urban industrial sector.

57
 Activity–7
1. Explain the basic assumptions of the Lewis theory of development
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
___

2. Identify the shortcomings of the Lewis theory of development

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
___

58
 Section Three

The Dependency Theory of Development

µ Section Overview
Dear learner, Welcome to the second section of this unit. International Dependence
Theories gained ground during the 1970s, particularly among the economists in the
developing countries. This section,therefore deals with the dependency theory of
development. Accordingly, the propositions of dependency theory will be liable to keen
inspection.

Section Objectives

Upon the successful completion of this section, you will be able to:
 Identify the points of arguments of the dependency theory of development
 Compare and contrast the dependency theory with modernization theory
 Explain the criticisms of the dependency theory

3.1 The Dependency Theory of Development

? Dear learner, what do you know about the dependency theory?

According to this school, the developed capitalist world changed the colonized nations
into sources of cheap inputs to production in the capitalist nations and markets for
products, hindering and distorting the development way of developing countries. The
school suggests that class struggle is the engine of social change and development.

The school is concerned with modernization strategy, which promotes agri-business and
the integration of agrarian of agrarian economy of the developing countries into the world
capitalist system. The school argues for revolutionary way of change and not for
evolutionary approach. Other arguments of the dependency theory include:

59
  The developed countries could not have achieved the level of development that
they have without the systematic exploitation of developing countries;
 That the process of development passes through a series of stages is an illusion
and developing countries could not attain development following the path adopted
by developed countries, so long as the exploitation world system exits;
 Countries that are now poor were not so to begin with, rather they have been
forced into the stage of underdevelopment by a global system of capitalist
exploitation;
 Different aids offered are also claimed to serve as a vehicle to promote the
interests of international capital in different forms, while food aid is used as
political weapon. And some supports by developed countries is conceived by the
school as means to forestall rural social unrest; of food production.
 Multinational corporations are considered to the center world capitalist system
that promote the interests of the international capital and the dependence of
developing countries, through facilitating conditions for and influencing the
behavior of aid agencies to serve the interests of the MNC’s (e.g. tractorization,
commercializing seeds, fertilizer and pesticide; growing role of MNC in vegetable
and flower production).

In connections with the above dependency relationships, different issues are raised,
including the genetic erosion problem taking place in developing countries as a result of
Multi-National Corporations (MNC’s) efforts to acquired diverse resources an much as
possible and cause genetic vulnerability by promoting a few internationally selected crop
varieties, and granting of legal right to traditional farmers of developing countries for
selecting and maintaining local genetic resources.

In the context of rural development, rural-urban linkage being exploitative, the urban
exploiting the rural. Policies are being biased against rural economy and society. The
school therefore focuses on relieving rural economy and society from
urbanelitist’spressure. The school was popular in 1970s, Raul Prebish being the forefront
theoretician for the perspective.

60
? Dear learner, what are the criticisms against the dependency model?

In 1980s a number of criticisms were forwarded claiming that the theory too
deterministic and too simplistic, emphasizing the center-periphery relationship of
developed countries and too simplistic, emphasizing the center-periphery relationship, of
developed countries and developing countries. On the other hand, however, the
experience of the recently industrializing countries of Southeast Asia like Taiwan,
Singapore, and Hong Kong may not necessarily justify the claims of the school. These
countries have shown a significant progress in development without snapping their
relations with the international capital and developed countries.

The school seems to ignore other factors of development that may play a significant role
in the development process of developing countries. The conditions and factors that also
need attention in the development process, which, however have not received due
recognition by the framework are population growth, resource base, human capital and
other capitals. Besides, the mechanisms and processes underlying are often either not
fleshed out with adequate care or are not quite robust.

In general, an important reflection in here is that relations between developing nations

need to be viewed on the basis of examining which international economic and political
relationships are beneficial to economic and rural development of the developing
countries.

61
 Activity–8
1. Explain the arguments of the dependency model of development
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

2. Why proponents of the dependency model disagree with modernization theory?

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

3. Identify the criticisms pointed against the dependency model of development

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

62
 Section Four
Rosenstein-Rodan’s theory of Big Push

µ Section Overview
Dear student, welcome to the fourth section of this unit. It is about Rosenstein-Rodan’s
theory of big push. The argument posed by this theory is the principal focus of this
section. Dear student, the critic outlined at the end of the theory is also needs to give
focus.

Section Objectives

Upon the completion of this section, you will be able to:

* Analyze the arguments of Rosenstein Rodan’s big push theory with its view on
rural development.
* Identify the criticisms forwarded against the Rosenstein Rodans bib push
theory.

4.1Rosenstein-Rodan’s theory of Big Push

?Dear learner, what do you know about the Rosenstein-Rodan’s theory of big
push?

This is a development model that falls in the framework of modernization. It argues that,
development that proceeds bit by bit will not add up in its effects to the sum total of a
single bit, big push. A minimum quantum of investment is a necessary, thought
notsufficient condition of success. Rosenstein-Rodan identifies three different kinds of
indivisibilities that may be considered to be the main bottlenecks to the development in
developing countries. These are:
i. Indivisibility in the supply of social overhead capital (lumpiness capital)
ii. Indivisibility of demand (complementarity of demand)
iii. The invisibility (kink) in the supply of savings

63
He argues that a big push in terms of a high quantum of investment is required to scale
the economies obstacles to development created by these three kinds of invisibilities, and
the external economies to which they give rise. This implies that the development process
is a series of discontinuous ‘jumps’ and each jump require a big push. Besides, there may
finally be a phenomenon of invisibility in the vigor and drive required for successful
development policy. Isolated and small efforts may not add up to sufficient impact on
growth. An atmosphere of development may only arise after critical minimum level of
investment has been reached.

?Dear learner, what do you know about the criticisms of Rosenstein-Rodan’s

theory of big push?

Rosenstein does not offer any specific and practical suggestion to overcome the adverse
effect of the indivisibilities, but he suggested that international trade may reduce the size
of the minimum push required to obviate the effects of indivisibility (complementarity) of
demand.

A major criticism of this theory is that the resource required to give the ‘big push’ is of
such a high order, that a developing country like Ethiopia cannot afford them

64
 Section Five
The Human Capital Model of Development

µ Section Overview
Dear learners, in the preceding section the propositions of the dependency theories in
light of their implications for rural development has been discussed. This section is about
the human capital model of development. The model places a paramount importance on
human capital, which has been ignored in the classical theory of development. In this
therefore you will get a better insight of the human capital model of development.

Section Objectives

Upon the successful completion of this section, you will be able to:
 Explain the propositions of the human capital model of development
 Define what human capital is all about
 Identify basic elements among the four development paradigms discussed

5.1The Human Capital Model of Development

? Dear learner, what is human capital?

The model stresses the importance of human capital investment in the process of
economic and social development. By human capital we mean acquired mental and
physical ability through education training, health care, and pursuit of some spiritual
methods (e.g. meditation). The acquisition of human capital is largely through the
investment of human effort and money, for example schooling model, which relates
economic development to schooling. The classical and neoclassical economists did not
explicitly include the quality of human resources in their theoretical framework; labor
was taken to include both possible and mental effort (Alex, 1983 cited in Singh, 19990.

65
It was Theodore Schultz (1964) who elaborated the concept of human capital, and
explicitly considered the investment in human capital as important determinant of
economic development. The model considers the totality of human potential, and
emphasizes the need to harness it for the good of the people, in respects people’s culture
and religion, and social values and structures.

The human capital approach to rural development is based on the following two
assumptions, which have been ignored in the classical theory of development:
 Human physical and mental capabilities are partly inherited and partly acquired,
and they vary from individual to individual, i.e., the classical assumption of
homogenous labor force does not hold.
 Human capital directly contributes to development through its positive effect on
productivity, and through reduction in resistance to the diffusion of new
technologies in the economy, especially in the rural sector.

This model thus shifts the emphasis from physical; capital formation to human capital
formation, and from industrial development to rural development, as a basis for overall
development. This model seems appropriate for developing countries where a lot of
under developed human resources with potential for developing countries where a lot of
under developed human resources with potential for development exists. Besides, human
resources are renewable and hence, inexhaustible non-renewable physical in the process
of development, and thus relax the constraint on development imposed by inadequacy of
physical capital to a large extent. In fact a strategy for development of the tertiary
services sector, which is the fastest growing sector all over the world, requires skilled,
experienced and innovative human resources for their success. Human resource
development through nutrition, health care, appropriate education, training and
empowerment deserves the highest priority now also under Ethiopian conditions.

Dear learner, to sum up all the different models of development, the following may be
concluded. Although there is no universal theory of rural development, the various
paradigms and hypotheses of development summarized in this section provides many

66
 valuable insights into the processes and determinants of rural development. We can
extract relevant elements from the paradigms and synthesize them into an operational
framework of rural development suited to our times and circumstances. The common
elements or factors common to all paradigms include: natural resources, new technology,
capital accumulation and investment, educated technically trained, enterprising and
motivated human resources with values and ethos congenial to rural development, and an
appropriate institutional and organizational framework.

What is needed for developing countries like Ethiopia with large size of population and
considerable natural resources is a long-term policy from development of human
resources through education, training, health care, and empowerment and creation of a
congenial socio-economic, institutional (including legal) and political environment for
the fullest possible utilization of the vast, untapped reservoirs of human power and
ingenuity.

 Activity–9

1. What is human capital?

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

2. Explain the propositions made by the human capital model of development?

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

3. Identify some basic elements among the four development paradigms?

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

67
 Unit Summary
Dear learner, the unit has dealt with perspectives of rural development, though there is no
as such universal theory of rural development. There are only hypotheses and
propositions that constitute higher level of generalizations in the field of development.

Dear learner, in the unit we have discussed about the arguments and critics of
modernization theory. In this perspective agricultural development is envisaged to pass
through stages of growth as inevitable linear process emulating the historical process
through which agricultural development in developed countries has passed, with transfer
of technology and know-how from the so called developed world.However,
modernization theory is criticized for being elitist and centralist and does not consider the
indigenous social institutional contexts. One variant of this theory is the Lewis model of
economic development, which asserted that labor can be transferred from the rural to the
urban sector without adversely affecting productivity in the rural sector. Dear student, we
have said that, this model is also suffering from incisive critics.

Dear students, in unit two we have dealt with the dependency model of development. The
model asserted that the problem of underdevelopment as one arising out of the
domination of the poorer countries by the richer one. In the context of rural development,
rural-urban linkage is designed in such a way that the urban is exploiting the rural. Once
again, this model is criticized, among other in its exclusive emphasis on external factors,
leaving out internal factors as the possible causes of underdevelopment.

Finally, the human capital model of development was dealt in the last unit. Accordingly,
this model thus shifts the emphasis from physical; capital formation to human capital
formation, and from industrial development to rural development, as a basis for overall
development

68
Check List
Direction:Dear students this is the section in which you confirm your understanding
of the lessons in this unit. Put a tick mark ( ) in the yes column for activities that you
have clear understanding and in the no column for activities that you doubt that you
have no good understanding so that you can go back to the lesson and learn again.

I Can: NoYes
 Explain the assertions and critics of modernization theory
 Analyze the Lewis economic model
 Explain the arguments of the dependency theory
 Elaborate the theory of human capital model

Self test exercises

Part I: Choose the best answer from among the given alternatives

1. The view that ‘the whole is greater than the sum of its parts’ entails_______
development perspective
A. Structuralist C. Residual
B. Systems D. None
C. Incremental

2. One can best argue against modernization theory in light of African states in that
A. The model/theory seems to overlook the importance of indigenous knowledge
B. The theory is totally unrealistic and irrelevant for African countries
C. The theory laid a fertile ground for the exploitation of African Countries (Periphery)
by the west (Core)
D. African countries are indifferent to the transfer and diffusion of technologies.
E. All
3. The principal assumptions of the Lewis model of economic development is________

69
A. Marginal labor productivity is higher in the modern industrial sector
B. Human capital development is an engine of economic development.
C. Marginal labor productivity is higher in the traditional rural sector
D. Development that proceeds bit by bit will not ad up in its effect to the sum total of
overall development
E. All
4. Modernization theory viewed underdevelopment as__________
A. internally induced phenomenon
B. externally induced phenomenon
C. the lack of human capital development
D. the prevalence of inequality
E. All
5. Which of the following theory employs structuralist approaches of development?
A. Modernization theory D. The human capital model
B. Dependency theory E. All
C. The Lewis model
6. Pick out the correct combination
A. Modernization theory-Systems approach
B.Big push theory- Incremental approach
C.Dependency theory-Structuralist approach
D. Dependency theory-Incremental approach
E. Lewis two sector model-systems approach

7.Development is not always seems to be a matter of having new technology, as it is

critically conditioned by the indigenous social and institutional (and environmental)
contexts. This is a critic pointed against____
A.The dependency theory D. The human capital model
B.Modernization theory E. None
C.Environmental pessimists

Part II. True or False

70
________1. The dependency theory of development advocates for the evolutionary way
of change.
_______2. According to the Lewis two sector model, disguised unemployment is a
typical feature of the agricultural sector in developing countries

Part Three: Fill in the blank space

1. The central concept of modernization perspective is____________________

2. The acquired mental and physical ability through education, training, health care and
pursuit of some spiritual is known as__________________________
3._________________________theory is criticized for being centralist and elitist.
4. The type of development perspective (approach) that asserts a holistic analysis and a
general relationship of environmental, demographic and technological conditions and
social responses to them within the rural/agricultural systems is referred to
as______________

UNIT THREE
71
 RURAL DEVELOPMENT POLICIESAND STRATEGIES

Introduction
Dear learner, welcome to unit three of this module. In order to foster development in
rural areas, different schools of thought advocate different paths. It must be borne in mind
that there is no single universal means by which this can be universally attained.
Different economic and social systems have to take it to account their mown specificities
in order to further rural development.Accordingly, strategies and policies play an
important role in furthering rural development since it ia a long-term process. Since
conditions vary substantially between one country and another, it is difficult to formulate
a single strategy suited to every developing country.

Dear student, this unit has two major sections. The first section deals with rural policy.
Hence, the meaning, process and justification of rural development policies will be
discussed. In section two, you are going to discuss about rural development strategies.
Meanings and types of rural strategies will be the focus in this section.

Unit Objectives
After completing this unit, you are expected to:
 Explain the meaning of policy
 Elaborate the conditions/justifications for rural development policy
 Explain the meaning of strategy
 Analyze pros and cons of different rural development strategies

ðPre-test Questions
 What is policy?
 What do we need a rural development policy for?
 What is strategy all about?
 Can you mention the different types of rural development strategies?

Section One
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 Rural Development Policy

µ Section Overview
Dear learner, welcome to section one of this unit. In this section, the meaning,
justifications, process of policy will be discussed.

Section Objectives

Upon the successful completion of this section, you will be able to:
 Define policy
 Justifications for rural development policy
 Process of rural development policy
 Classifications of policy and policy instruments

1.1 Policy: Defined

? Dear learner, what is policy?

Webster’s dictionary defines policy as a definite course of action selected (as by

government, an institution, a group, or an individual) from among alternatives, and in
light of given conditions to guide and usually to determine present and future decisions.
Policy is a course of action or intended course of action conceived of as deliberately
adopted after a review of possible alternatives and pursued, or oriented to be pursued.

Ellis (1992) defines policy as a course of action chosen by a government towards an

aspect of the economy, including the goals the government seeks to achieve, and the
choice of methods to pursue those goals. Policy is also a general term that implies state
intervention in the economy.
Public policy is a form of social control. But it is a control to safeguard the freedom for
certain other actions (e.g. controlled utilization of subsidy to enhance freedom of

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increasing income and productivity). Here the issue is not how to avoid social control, but
rather how we can make social controls so selectively that they will restrain license and
promote freedom in the larger interests of society.

? Dear learner, what is the difference between development projects and

programmes?

It is important to distinguish between rural development projects and programmes. Rural

development projects are micro level efforts to bring about changes in rural areas. These
changes can take many forms ranging from efforts to increase literacy to attempts to
increase agricultural productivity. The effects of these projects are not generally
widespread in the sense that they concern only a small number of people.

Rural development programmes involve a number of projects each, which are aligned to
one another so that they influence the various facets of rural economic and social life.
Therefore, rural developments programmes attempt to bring about changes in a wider
area impacting a greater number of people. Rural development programmes are more
difficult to implement because of the problem of scale. This is particularly so in the case
of a country like Ethiopia where the rural population is large, widely dispersed and with
varied socio-economic and natural endowments.

Public rural development policy refers to actions taken by the government in pursuit of
certain objectives of rural development. Of course, rural development includes
agricultural development. Policy is comprehensive, while program that derives from
policy is specific in terms of objectives, location, duration, funds, and executing agency,
and lends itself to planning, financing and implementation. Project is subset of a program
as an investment activity, where resources are expended to create a producing asset from
which we can expect to realize benefits over an extended period of time.

1.2 Conditions and Justification for Rural Development Policy

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?Dear learner, what are the reasons that justify the need for a rural development
policy?

The individual, as producer and as a consumer, depends more and more upon the general
conditions for the market, of employment, output and production efficiency of the nation
as a whole, and upon the way income is distributed among the people. The major reasons
for rural development policies include:
 To ensure growth with social equity or social justice:
 To protect rural poor from adverse effects of free market responses to
fluctuations of production, price and income. Such protection can be provided
only by the government in the from of price support, insurance, and credit
policies;
 To support rural income and improve its distribution through anti-poverty
programs;
 As most of the rural enterprises are small, scattered and unorganized, they
need policies to improve their access to opportunities and to improve their
bargaining power against the exploitative power;
 To provide basic infrastructural facilities (e.g. roads, water) and services
(health, education, police protection, etc):
 To provide sufficient support to agriculture, the dominant sector in rural and
national economy.

1.3 Desires, Process and Instruments of Rural Development Policy

?Dear student, what are the instruments of rural development policy/

Rural development policies are designed to improve the conditions under which rural
people work and live. The goals of policies are governed by what people desire and the
measured of policies by what people think the government can and ought to do to bring
about the desired change (theory of public policy). Changes are desired only when people
do not like the way things are going. Pressure for public action arises when people feel

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that they, individually, can not bring about the desired adjustments. They have in mind
some norm, some image of an ideals situation towards which they strive. These norms or
desires become the goals of policy towards which objectives of specific programs are
directed. The policy process therefore involves activities, events, and interaction among
stakeholders, governing bodies, and organizations followed by formulation, promulgation
and application of the course of actions.

A public policy of and country consists of three elements policy objectives, policy
instruments, and rules for operating instruments of policy. This is that a policy is usually
framed in terms of several simultaneous objectives, and involves several instruments,
which are applied according to specific rules devised in order to achieve the objectives. It
is the way in which the rules are set for the operation of the instruments which determines
the outcome of policy, and which thereby controls the extent to which the different
objectives are individually achieved. There are always organizations or agencies that
implement the instruments according to defined rules of implementation of policy
instruments.

Policy instruments, as methods of state intervention, are devised with policy objectives
and constraints in view. There could be several instruments that separately or jointly
could contribute to stated objectives. An instrument is defined as something, which the
manager or policy maker can change or manipulate in order to produce a desired effect.
(e.g. interest rate, price support, subsidy, nationalization of banks). It is a means by which
an objective is pursed. A rule or measure is the use of a particular instrument at a
particular time and place under particular specifications in order to promote one or more
policy objectives (e.g. raising bank interest rate on a certain day). Policy instruments, as
methods of state intervention, are devised with policy objectives and constraints in view.
There could be several instruments that separately or jointly could contribute to stated
objectives.

An example is in here. Sri Lanka has for many years operated a policy of subsidizing the
consumption of basic staples such as rice and cooking oil in order to promote equity, help

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control malnutrition and to contain pressure on wages. The policy was highly successful
in these regards, but because the amounts of subsidized food which consumers were
entitled to were large in the early and mid 1970s, the budgetary and foreign exchange
costs of the policy jumped sharply after the commodity price boom of 1973 – 74. In 1975
food imports amounted to a staggering 66% of Sri Lanka’s total export earnings. In order
to contain these costs the subsidized ration entitlement was progressively reduced by
stages and was further restricted to the neediestby limiting it only to those issued with
food stamps. i.e. the subsidy program remains but the way it operated (rules of operation
of the policy instrument – subsidy) was changed.

1.4 Classification of Policy and Policy Instruments

?Dear student, what are the different classifications of a policy?

Tinbergen (1952) distinguishes between qualitative and quantitative policy. A qualitative
policy seeks to changes the economic structure through the creation of new institutions,
modifications of existing institutions and nationalization of private firms. A quantitative
policy seeks to change the magnitude of certain parameters, for example, change in the
tax rate. There could be a policy that represents both qualitative and quantitative policies,
for example introduction of education system free of charge, if previously tuitions fees
were charged. It is qualitative because it represents a change in the economic structure,
and is quantitative because it represents a change in the fee, from something to zero.

Heady (1965) classifies agricultural policies into development policies and compensation
policies. A development policy seeks to increase the supply of commodities and
resources, and to improve the quality of products and inputs. A compensation policy is
aimed at compensation its target group in various ways subsidies, price support, etc.

Policy can also be categorized into two groups: efficiency policy and equity policy.
Efficiency policy is concerned with goals of material welfare for the consumers of
society as a whole for a given set of prices in resources and output markets is sought.

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Equity policy is concerned with goals of improving income distribution. Equity is a fair
distribution of the totaloutput between individuals or social groups within a society. Thus
policy goals could be either efficiency (output) or equity oriented.

Similarly, policy instruments can be classified in many ways. Colman and Young (1989)
for example classified policy instruments by considering the level in production and
distribution system at which intervention is applied. Using this approach instruments are
grouped according to whether they are imposed (1) directly at the farm level, (2) at the
national frontier, or (3) at some other time in the domestic markets.

The frontier-level instruments alter the relationship between the domestic and
international markets; that is to say they shift the relationships between domestic and
international prices and the volume (and possibly direction) of trade flows from the free-
trade levels, Instruments applied at the farm level permit the amount and type of
economic activity in farming to be adjusted relative to the level permit the amount and
type of economic activity in farming to be adjusted relative to the levels, which would be
dictated by competitive pressures from national and international markets. Instruments
applied at market level can be used in a variety of general ways for example, state
marketing boards can used their powers to raise or lower prices received by farmers thus
causing farm output to deviate from competitive levels, or they can be used as a vehicle
to pass food subsidies to consumers thus raising consumption from the level it would
otherwise be or in conjunction with a frontier instruments they can be used to raise or
lower prices to producers and consumers simultaneously.

Another possibility of policy instruments according to whether their point of impact is in

agricultural product or factor markets, clearly import taxes or subsidies may be applied to
items, which are factor inputs for agriculture as well as to products. Another
classification of policy instruments is that based on whether they enhance revenues or
reduce costs. The following are some definitions of someselected policy instruments
according to point of intervention criterion:

Farm Level

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 - Production subsidy –a fixed or proportionate subsidy paid per unit of output

- Input subsidy/credit –subsidies per unit of a variable input used. Cheap credit
offered for the purchase of inputs will have the same effect.

Market level

- Intervention buying – Parastatal organizations empowered to help place a floor

price in the whole sale market by purchasing commodity at a pre- announced
intervention price.

- Excise taxes – taxes levied on the production or processing of goods

Frontier level

- Import tariffs, levies or duties – taxes on imports may be charged in several

ways. They may be as a fixed proportion of the value (ad valorem) or as a varying
sum equal, say to the difference between a fixed minimum import price and a
variable international price.

- Non-Tariff Barriers-a large number of legislated instruments may be used to

impede imports. High regulations, labeling requirements, and special technical
requirements, which may be continuously changed, are all used to restrict imports.

Activity–10
1. What is policy?
______________________________________________________________________
______________________________________________________________________
79
______________________________________________________________________

2. Explain the justifications for rural development policy?

______________________________________________________________________
 Section Two

Rural Development Strategies

µ Section Overview
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Dear learner, in the preceding section, we have deals with rural development policies. In
this section, the meaning and types of rural development policies will be discussed.

Section Objectives
Upon the successful completion of this section, you will be able to:
 Define the meaning of strategy
 Identify types of rural development strategies

2.1 Meaning of ‘Strategy’

? Dear learner, what is ‘strategy’?

Strategy, literary speaking, is a carefully devised plan of action to achieve a goal, or the
art of developing or carrying out such a plan. Each rural development strategy has its own
ideological roots upon which the elements of the strategy have been based. A strategy
consists of an ordering of various policy parameters to attain the desired goals. Different
strategies emphasize different sets of policies in order to achieve their goals. However,
there are certain important policies that are common to most rural development strategies.
These policies are related to: agriculture, employment, education, research and extension,
rural institutions and agricultural pricing.

2.2Types of Rural Development Strategies

? Dear learner, how many types of rural development strategies do you know?

Different strategies emphasize and give importance to different mixes of agrarian

relations, techniques of production and state policies in order to achieve the goals of rural
development. To illustrate some of the relevant issues, we may briefly discuss the
following rural development strategies, giving importance to agrarian relations for
purpose of classification. These are:

i) A strategy based on collectivization of resources

ii) A strategy based on regulated capitalist perspective

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 iii) A strategy based on peasant agrarian perspective

iv) A strategy based on Laissez-Faire or unregulated free-market capitalist

perspective

Of course, these four strategies do not constitute an exhaustive list and are simply
illustrative.

2.2.1 A strategy based on Collectivization of Resources

?Dear learner, what do you mean by collectivization of resources?

Collectivization of rural assets (particularly land) is given utmost importance in the first
strategy. Private ownership of land is abolished so that not only are inequalities in the
ownership of land eliminated but also land use can be made more productive. The latter is
achieved because small plots of land can be consolidated so that large scale cultivation
can bring about economies of scale in agricultural production. Large scale cultivation
also raises productivity by creating possibilities for the use of modern technology in the
shape of tractors, harvesters etc. This strategy was followed with fairly good success in
the Soviet Union, China and the East-European countries. These countries were able to
make sharp increase in production soon after they initiated this strategy. However, for a
variety of reasons, which are too complex to be recalled here, the erstwhile socialist
regimes have collapsed or changed course dramatically and this strategy is not in
operation anywhere currently.

2.2.2 A strategy based on Regulated Capitalist Perspective

The second strategy envisions a co-existence of a capitalist sector and a peasant sector
that gets some support and protection from the state. Any large-large redistribution of
land or reconfiguration of land relations are ruled out. It is hoped that the objective of
rapid growth would be taken care by the capitalist sector while the peasant sector would

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address the problem of unemployment till the time the nonagricultural sectors start
growing at a rapid pace.

This approach to rural development has been criticized for not being able to reckon with
the fundamental contradictions in rural areas. It is pointed that without meaningful land
reforms, this strategy can only have limited success, as rural inequalities are ignored in
this strategy. Rural elites, on the other hand, exercise control and prevent changes that
will bring about a change in the unequal distribution of assets (particularly land), and on
the other, corner a large part of whatever resources are pumped in from “outside” to
better the lives of the poor.

2.2.3 A Strategy based on Peasant Agrarian Perspective

The strategy based on the peasant agrarian perspective argues for though-going
redistribution of land and overhaul of land relations. It envisages strong support for small
peasant units, which are supposed to take care of the twin-objectives of growth and
employment. An extensive network of cooperative institutions, marketing facilities etc is
accorded critical importance in this strategy.

Both in the second and the third strategy, it is envisaged that the state will play important
roles in promoting and strengthening the non-agricultural economic activities in the rural
areas, so as to ease the pressure of surplus labor on agriculture and to facilitate the
creation of decent livelihood options elsewhere in the long-run. Sure enough, it is
expected that a vibrant agricultural sector will itself generate strong impulses for the
creation of non-agricultural opportunities, but to harness such impulses the State is
expected a whole range of important functions. Furthermore, it is assumed that the
problem of adequate infrastructure in rural areas will be addressed by the state and also
the investments in social sectors such as education, health, etc.

2.2.4 A strategy based on Laissez-Faire or Unregulated Free-Market

Capitalist Perspective

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Finally, we have what can be called a strategy based on unregulated capitalist
perspective. Such a strategy presumes that the rich land owners will play the vanguard
role in rapid increase in agricultural output, by taking advantage of the economies of
scale and gradually the small cultivation units will disappear. It is suggested that the state
should not intervene in the expansion of the capitalist sector and there should be no
ceiling on ownership. Unfettered expansion of this sector is supposed to provide a
dynamism that will overall rural economy and the benefits from it, through employment
and increasing incomes, are supposed to percolate (get into) the lowest strata. The issues
of inequality and distributive justice are considered non-issues in such a strategy. To the
extent the state has a role, it is with respect to infrastructure, but there too it is not viewed
as the major actor necessarily.

This is so, not only because it ignores a number of development concerns, but also due to
its excessive and unwarranted optimism as regards growth and its percolation. It should
be obvious that whichever strategy of rural development one may opt for, the core of it is
an agricultural development strategy. If such a strategy has to address the concerns of
development highlighted earlier, it has to be broad-based. For this a restructuring of land
relations is obviously the key factor. Hence, the core concerns of a rural development
strategy include:

 Agricultural research, extension, rural education and training programmes for

farmers from a part of institution building activities

 Infrastructure building activity related to the growth of irrigation, transport,

communications and health facilities

 Programmes to improve marketing facilities for the distribution of agricultural

inputs and implements

 Policies related to land tenure, agricultural output prices and taxation of

agricultural incomes.
[[

Based on the experience of market economies as regards the approach towards

distribution of land, types of strategies for fostering the growth of the agricultural sector
can also be classified as “uni-modal” and “bi-modal” strategies. Unmoral and bimodal
rural development approaches are defined in terms of the path selected for development

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of agriculture, for agriculture is the primary and core sector predominantly determining
the economic and social development of the rural sector (rural development) in many
developing countries today.The central axis of the debate by the two approaches is the
argument for the necessity of the development of large-scale units of farm production
(bimodal or capitalist approach to agricultural development) and the argument for
agricultural transformation on the basis of small-scale peasant farms (uni-modal or neo-
populist approach).

I. “Uni-modal” Strategy/Approach to Rural Development

A uni-modal strategy is one in which land holdings are equitably distributed. This
strategy was followed with tremendous success in the case of Japan, Taiwan, and Korea.
It seeks to promote rural development through the use of thorough-going reforms in the
agricultural sector. Thus, because of the land reforms and the consequent even
distribution of rural assets, resources meant for the agricultural sector are also spread
evenly. This type of agricultural strategy creates a situation that enables rapid growth of
agricultural production with equitable distribution of incomes. This in turn not only
results in rapid rural development, but also provides an important basis for overall
economic development.

Uni-modal approach is based on conceptual perspective of specific peasant economy

which argues that small producers who are not separated from their means of
productionand who survives in the sense of household producers retaining a degree of
control overland and family labor in spite of secular differentiation that may take place in
the economy due to commoditization and commercialization. The strategy aims at the
progressive modernization of the entire agriculture sector (e.g. Japan and Taiwan). The
approach’s major strategy is maximum mobilization of labor and land resources of the
developing countries. The approach, cognizant of the fact that agriculture is subject to
demand constraints in relation to non-agricultural sectors and the resulting purchasing
power constraint to use of purchased inputs produced domestically or imported,
underscores the importance rapid technical change, particularly divisible innovations that
leads to the wide spread increase in the productivity of land and labor.

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The success of individual farm units in allocating resources so as to minimize costs is an
essential ingredient of efficient agricultural strategy. It is however the nature of technical
innovations and their diffusion among farmers that are decisive in minimizing the cost of
the sector-wide expansion of farm output and in determining the pattern of development.

II.“Bi-modal” Strategy/Approach to Aural Development

The bi-modal strategy for the growth of the agricultural sector attempts to increase
agricultural production without making attempts to drastically change the skewed
distribution of incomes and assets in rural areas. Many countries in Latin America are
examples of this type of strategy. In the case of this type of strategy there is no attempt to
bring about land reforms. A large number of small farms coexist with a small number of
large size holdings. The idea is to concentrate modern technology and inputs to the latter
and thereby achieve agricultural growth. Such a growth pattern clearly ignores a whole
range of developmental concerns and is also unable to provide strong foundation for
overall economic development.

Bimodal approach is a crash modernization strategy that concentrates resources in highly

commercialized sub-sector, with the resulting development pattern based on a dualistic
size structure of farm units (e.g. Mexico, Colombia). The approach is based on
differentiation theoretical perspective which asserts that commoditization and
commercialization process inevitably generate differentiation in agrarian societies where
by rural producers are set apart into distinct classes (agricultural capitalist, small famer,
land less agricultural employee) and producing a dual size structure of farm units.
These two agricultural development paths are different in their contribution to achieving
the three major objectives of an agricultural development strategy. The objectives are (i)
advancing structural transformation, (raising the welfare of the farm population and (iii)
fostering changes in rural attitudes and behavior that will have beneficial effects on the
process of rural development and modernization. The embraced path of agricultural
development needs to facilitate the fulfillment of the objectives and policies and
components of the agricultural strategy chosen.

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Any agricultural strategy would comprise (a) programs of institution-building related to
such activities as agricultural research, rural education and farmer training, (b) programs
of investment in infrastructure, including irrigation and drainage facilities and rural roads,
(iii) programs to improve product marketing and the distribution of outputs and (iv)
policies related to prices, taxation, and land tenure, A strategy’s emphasis need to be on
action to change the production possibilities available to farmers by modifying their
institutional, technical, and economic environment. An underlying premise is that
decentralized decision making by individual producers in agriculture, and a price
mechanism performs a critical function in harmonizing decentralized decision and in
harnessing the powerful motive of profit. In this connection, government may need to
adopt policies to make prices reflect more adequately the social costs and benefits of
using resources in different types of productive activities.

A suitable approach of a strategy is a simultaneous consideration of the objectives to be

furthered and the means (policies and programs) by which these objectives are to be
attained choice of objectives and of means of a strategy need to be guided by explicit
recognition of certain constraints that can only be gradually eliminated, especially those
imposed by structures and demographic situation. Multiple objectives of agricultural
development are the choice criteria of an agricultural development strategy. The three
major objectives indicated above are therefore a bit elaborated below.

(i) Expansion of farm output and income: There is a need to achieve a rate and
pattern of output expansion in the agriculture that promote overall economic growth and
structural transformation taking full advantages of positive interactions between
agriculture and other sectors. This objective encompasses agriculture contributions to
development (a) providing increased surplus of food and raw materials to meet the needs
of the expanding non-farm sectors, (b) earning foreignexchange through production from
export, and (c) providing a net flow capital to finance a considerable part of the
investment requirements for infrastructure and industrial growth.

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The growth of a marketable surplus of farm products, expansion of foreign exchange
earnings and increased availability of resources for capital formation are necessary
conditions for the development of a diversifiedmodern economy. At the same time, the
growth of farm cash income associated with structural transformation means increased
rural demand for inputs and consumer goods that can provide important stimulus to
domestic industry. The strength of that stimulus and the associated feedback effects will
be strongly influences, however, by the composition of a rural demand.

This expansion of farm cash income generates demand for simple tools and consumer
goods thus fostering the evolutionary growth of domestic manufacturing that leads to the
strengthening and diffusion of entrepreneurial and technical competence.

(ii)Broad-based improvement of the welfare of the rural population:

This objective is important simply because such a large fraction of the population of
developing countries is destined to live and die in farming sector and society. This is
achieved through altering the predominantly agrarian structure of the economy. They
possibility of enlarging to average income of farm households is determined mainly by
the rate and character of the structural transformation, as manifested in the decline of the
relative, eventually the absolute size of the farm work force and the associated growth of
commercial demand for agricultural products.

The inequality in income distribution is a conspicuous feature of most les developed

countries. This inequality will either be reduced or exacerbated depending whether the
demand for labor increases more or less rapidly than the country’s workforce. On the
other hand, the extent to which expansion of farm output leads to widespread increases in
income-earning opportunities depend on the development and diffusion of technological
innovations. Certain dimension of welfare can be furthered by direct action through
government programs like rural works and public health and related activities.

Bimodal or capitalist agriculture can develop as landlord capitalism (capitalism form

above) or as peasant capitalism (capitalism from below) or a s a mixture of both forms.

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Such agrarian change in developing countries is the development of a differentiated
peasantry, from which a class of capitalist farmers and one of the agricultural wage
labourers can emerge. The agrarian question is however not solved from the point of
view of the whole social formation until a regular surplus on reasonable terms (acquired
through market, taxation or savings)( is made available to en be industrialization to
proceed and capitalism to develop outside agriculture. This will break then the political
power of the rich peasantry.

 Activity–11

1. What is strategy?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
___

2. Explain the types of rural development strategies?

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
___

Unit Summary
Dear learner, in this unit you have dealt with rural development policies and strategies.
Policy is defined in such as way that, though no universally accepted definition, it is a
definite course of action selected from among alternatives, and in light of given
conditions to guide and usually to determine present and future decisions.The major
reason for rural development policies includes, among others the promotion of social
equity, output and income.

89
Dear student, we have said that, strategy is literary referred to as a carefully devised plan
of action to achieve a goal, or the art of developing or carrying out such a plan.A strategy
consists of an ordering of various policy parameters to attain the desired goals. Different
strategies emphasize different sets of policies in order to achieve their goals. However,
there are certain important policies that are common to most rural development strategies
that are related to agriculture, employment, education, research and extension, rural
institutions and agricultural pricing.

Check List
Direction:Dear students this is the section in which you confirm your understanding
of the lessons in this unit. Put a tick mark ( ) in the yes column for activities that you
have clear understanding and in the no column for activities that you doubt that you
have no good understanding so that you can go back to the lesson and learn again.

I Can: NoYes

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  Explain the meaning of rural development policy
 Analyze the justification for rural policy
 Define the meaning of strategy
 Identify the types of rural development strategies

Self test exercises

Part I: Choose the best answer from among the given alternatives
1. Which of the following is necessarily true about ‘Policy’ and ‘Strategy’?

A. The former is inclusive than the later

B. They are mutually exclusive
C. The later is part of the whole (former)
D. The later is less-comprehensive than the former
E. None
2. The vanguard role in unregulated capitalist strategy is played by___
A. State D. Rich Merchants
B. Peasant E. Rich peasants
C. land owners
3. According to the strategy based upon_____, there should be no ceiling on
property ownership.
A. Collectivization
B. Regulated capitalist perspective
C. Unregulated capitalist perspective
D. Peasant agrarian perspective
E. B and C
4. According to the current stands of EPRDF, the vanguard role in rapid
increases in agricultural output is to be played by___
A. Land owners D.State farms
B. Rich farmers E. Peasants

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 C. Capitalist
5. The type of rural development strategy that accorded primacy an extensive
network of cooperative institutions and agricultural extension
programme is___
A. Regulated capitalism
B. Laissez-Faire perspective
C. Peasant agrarian perspective
D. Unregulated free-market capitalist perspective
E. B and D
6. Which of the following is the correct descending order/ steps in policy
formulation and implementation?
A. Project Program Policy
B. Programme Project Policy
C. Policy Project Programme
D. Policy Programme Project

E. Project Policy Programme

7. Suppose you are a chief advisor of the Minister of the Ethiopian Ministry of
Agriculture, and your primary target is merely augmenting agricultural output. Which of
the following is then to be recommended in light of the aforementioned fact?
A. Invigoration of labor-intensive Technology
B.Initiation of Laissez-Faire Capitalist strategy
C.Initiation of Peasant agrarian strategy
D.Instigation of capital intensive technology
E.B and D
8. Equitable distribution of land is proposed by_____________
A. Neo-populist approach D. A and C
B. Capitalist approach E. None
C. Bi-modal approach
9. Bimodal approach of rural development is widely practiced in_____________
A. Japan D. Taiwan
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B. Mexico E. None
C. China

Part II. True or False

____________1. Public policy is a course of action chosen by any institution.

___________2. A compensation policy seeks to increase the supply of commodities and

resources.

__________3. Interest rate, price support, subsidy, and nationalization of banks are
examples of policy instruments.

__________4. A qualitative policy seeks to change the magnitude of economic

parameters.

__________5. The strategy based on the peasant agrarian perspective argues for though-
going redistribution of land and overhaul of land relations.

Part III Short answer

1. Differentiate the difference between a uni-modal and bi-modal approach to rural

development.

UNIT FOUR
RURAL INSTITUTIONS

Introduction
Dear learner, welcome to unit four of this module. It deals with rural institutions.
Institutions affect and affected by the activities of human beings. Improved institutions
play a pivotal role in economic development of societies. Institutions are the social rules
that facilitate coordination among people by helping them for expectations to dealing
with each other. The same holds true for rural institutions. Institutional innovations

93
contribute a lot for agricultural development, hence rural development as a whole. Rural
institutions, such as rural finance and credit, cooperative institutions, land tenure
arrangements, markets and informal institutions determine the ultimate pace of the rural
economic growth, hence, overall national economic development.

Therefore, dear student, this unit has seven major sections. The first section deals with
the meaning and role of institutions. Rural finance and credit institutions as an engine of
agricultural development will be discussed in section two. Section three of the unit
focuses on cooperative institutions and rural development. Land rights and land tenure
arrangements are the emphasis of section four. Section five of the unit deals with
markets. Finally, informal institutions and rural development is discussed under section
six.

Unit Objectives
After completing this unit, you are expected to:
 Explain the meaning of institutions
 Explain the importance of rural finance and credit institutions
 Explore the link between cooperatives and rural development
 Assess the implications of land tenure arrangements to rural development
 Identify the nature of rural markets and marketing
 Explain the nature of informal rural institutions

ðPre-test Questions
 What are institutions?
 What roles do rural finance and credit institutions play in rural areas?
 What is cooperative?
 How do land tenure arrangements affect rural development?
 What roles do rural markets play?
 What are informal rural institutions?

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 Section one

Meanings and Roles of Institutions

µ Section Overview
Dear learner, welcome to section one of this unit. In this part, due attention will be placed
on the meaning, nature and roles of institutions.

Section Objectives

95
Upon the successful completion of this section, you will be able to:
 Define institutions
 Identify the roles of institutions
 Explain the nature of institutions

1.1. Institutions

? Dear learner, what nature do you think institutions have?

Economic development is far more than a mere technological or physical transformation

of inputs into increasing out puts, it is more fundamentally an organizational
transformation of old ways of life and work into new rules of impersonal behaviors. And
this is inturn is possible only to the extent that people are able to make revisions in their
heritage of basic convictions concerning the kinds of interpersonal rules which do and do
not deserve their respect and support.

Improved technology and resources (production factors) do not automatically lead to

what we regard growth and development. Economic growth is conditioned by culture and
institution. Culture and institution are inseparably related. The rules that contradict the
morals of the people would not be sanctioned socially and if stipulated formally, would
not function effectively.

Economic growth cannot be achieved by capital accumulation alone, even if capital

embraces both tangible and intangible capital. In order to exploit complementarities
between tangible (physical, natural and financial) and intangible capital (R& D and
education) for maximizing economic growth, designing appropriate institutions is
necessary. Particularly in developing countries, institutions have a paramount role in
development.

? So what are institutions?

Institutions are the social rules that facilitate coordination among people by helping them
for expectations in dealing with each other. They reflect the conventions that have

96
evolved in different societies regarding the behavior of individuals and groups. In the
area of economic relations they have a crucial role in establishing expectations about the
rights to use resources in economic activities and about the partitioning or distribution of
the income streams resulting from economic activities.

Institutions define the structure of the relations, i.e. they order our daily lives. Economic/
livelihood provisioning activities are embedded in these structured relations, being
shaped by the relational rules (institutions). One can therefore consider economy as a set
of structured relations. North Douglasnotes that, institutions are the humanly devised
constraints that structure human interactions. Institutions define organizations (e.g.
corporation), in which case organizations are not rules). These institutions (1) define an
organization with respect to the rest of the world, and (2) spell out the internal nature of
the organization. These two types of rules (institutions) are found in the enabling
legislature, the constitution, the by-laws, the charter or the administrative rules of
organizations.

Development is actually a process whereby the institutional foundations of an economy

are continually modified and refined so that the existing physical endowments of land,
labor, capital and management become more productive in their own right. He further
conceptualizes development as a process of redeployment of land, labor, capital and
management within the larger economy such that new activities are now possible, and as
a process whereby the collectivity called the nation-state undertakes public investments
with tax receipts generated from the private sector. These public investments target
health, education, R&D, communication, transportation, old-age security, enforcement of
rules of law etc.

Institution or social structure develops from the interaction of past beliefs, values,
statuses, and roles, influenced by norms (rules) of behavior and social sanctions and the
new economic and social opportunities available.

? Dear learner, what roles do institutions play?

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Institutions expand human choices, an important goal of economic development.
Economic growth is itself expansion of human choice through expansion of resource
base, physical capital accumulation and human capital (education, health and
technology). Institutions affect human choice by influencing the availability of
information and resources, by shaping incentives, and by establishing the basic rules of
social interactions. Institutional innovations contribute to development by providing more
efficient ways of organizing economic activities, ways that often lead to fundamental
restructuring of an economy.

Constitutional order shapes the rate and direction of institutional change within the polity.
Institutional development efforts are commonly viewed as involving training, incremental
improvement in management systems, and construction of facilities.

For institutions to work effectively and fulfill the objectives set for them need
ademocratic political system. Democracy would make fertile ground for institutions to
emerge and develop to serve the needs, desires and imaginings (visions) of the people. A
representative legislature body/ Parliament and judiciary of a nation state have a key role
in shaping and enabling institutions under democracy. Institutions under democratic
system would be elastic enough to accommodate changes desired by the people through
its freely acting representative congress/ council and judiciary.

Institutional innovation or institutional development will be used to refer to change (1) in

behavior of a particular organization (a household, firm, association, bureaucracy), (2) in
the relationship between such an organization and its environment, (2) in the relationship
between such an organization and its environment, or (3) or in the rules that govern
behavior and relationships in an organizations environment. Thus the three core
components of institution is that it (1) influences the behavior of people, and hence have
economic consequences: (2) has continuity through time; and (3) arises, changes, and
disappears in fulfilling changing human economic, religious, social, or political goals.

? Dear learner, are organizations and institutions synonymous?

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No. The concept of organization is often confused with the concept of social institution.
An organization is often confused with the concept of social institution. An organization
consists of any identifiable group of individuals who participate together regularly in
attempting to do something. According to North Douglas, if institutions are rules of the
game, organizations and their entrepreneurs are the players. An organization often has
symbols, beliefs, status, roles, norms of behavior, and sanctions, and establishes many of
its own institutions (working rules or structures) to aid its won operation. Thus,
organizations include political bodies (e.g. political parties, regulatory bodies, a city
council) economic bodies (e.g. firms, family farms, cooperatives), social bodies (e.g.
churches, clubs, associations), and educational bodies (e.g. schools, university).

1.2. Institutional Change: Demand and Supply of Institutional

Innovation

? Dear learner, what is institutional change?

Dear student, institutional change is a complicated process because the changes at the
margin can be consequences of changes in rules, in informal constraints, and in kinds and
effectiveness of enforcement. Moreover, institutions typically change incrementally and
why even discontinuous changes (such as revolution and conquest) are never completely
discontinuous is a result of the imbeddedness of informal constraints in societies.
Although formal rules may change overnight as the result of political or judicial
decisions, informal constraints embodied in customs, traditions, and codes of conduct are
much more impervious to deliberate policies. These cultural constraints not only connect
the past with the present and future, but they provide us with a key to explaining the path
of historical change.

Relating institution to incentives, to choices, and to outcomes is essential to assess its

characteristics. Efficient institutions are expected to reduce transaction costs by reducing
measurement cost, by reducing information cost, by reducing costs of monitoring, and
costs of enforcement of contracts/agreement.

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Institutional changes like evolution of property rights in land that have happened in
different countries in the past (Thailand, England and Philippines) which would
contribute to the development of efficient market system are profitable for society only if
the costs involved in the assignment and protection of rights are smaller than the gains
from better resource allocation. If those costs are very high, it may be necessary to design
non-market institutions to achieve more efficient resource allocation. Disequilibria in
economic relationships such as new income streams caused by technological change and
changes in relative factor endowments as a result of economic growth are important
sources of demand for institutional change. Institutional innovations are demanded
because they enhance the welfare of rational actors.

The supply of institutional innovations depends critically on the power structure or

balance among interest groups in a society. If the power balance is such that the political
entrepreneurs’ efforts to introduce an institutional innovation with a high rate of social
return are adequately rewarded by greater prestige and stronger political support, socially
desirable institutional innovations may occur. But if the institutional innovation is
expected to result in a loss to dominant political block, the innovation may not be
forthcoming, even if it is expected to produce a large net gain to society as a whole.

? Dear learner, what relations do culture and institution have?

Culture has impact on institutional and technological changes. Cultural endowments,

including religion and ideology, exert a strong influence on the supply of institutional
innovation. For example, the traditional moral obligation in the Japanese village
community to cooperate in the maintenance of communal infrastructure has made it less
costly to implement rural development programs than in societies lacking in such
tradition. Like wise, ideology (e.g. socialist/communist ideology in China to mobilize
communal resources to build irrigation systems) may reduce the cost to political
entrepreneurs of mobilizing collective action for institutional change.

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Advances in social science knowledge can lead to institutional innovations that generate
new income streams or that reduce the cost of conflict resolution and thus shift the supply
of institutional change to the right. With the advancement of social sciences knowledge
and analytic skill, the generation of institutional innovation could be done with less cost
than through the process of learning by trial and error.

Institutional change is a response to changes in resource endowments and technical

change. Cultural changes (e.g. tastes or ideology) are also important sources of both
technical and institutional change. Generally, changes in relative endowments and prices
of land, raw materials, energy resources, capital, and labor have pervasive impacts on
both technical and institutional change.

 Activity-12

1. What are institutions?

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
___

2. Identify the roles played by institutions?

_______________________________________________________________________
_______________________________________________________________________
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_______________________________________________________________________
___

3. What is institutional change?

 Section Two

Rural Institutions: Rural Finance and Credit

µ Section Overview
Dear learner, in the preceding section due attention has been placed on the meaning and
nature of institutions. Now let’s discuss about the existing institutions in rural areas.
Hence, this section deals with rural finance and credit.

Section Objectives

102
Upon the successful completion of this section, you will be able to:
 Identify the purposes of credit
 Sources of credit (loan)
 Identify policies important for promoting rural financial markets

2.1 Rural Finance and Credit

An increased demand for farm loans during agricultural development arises from much
higher return to investmentsobtainable from the new, more productive biological,
chemical, and mechanical farm technologies. Increasing loans to farmers requires the
transformation of rural financial markets from limited informal, tradition of rural
transformation of rural financial markets for more informal forms of finance. Loans are
fungible, using loans for purpose unintended during borrowing. Actually, loan is not an
agricultural input, it rather increases borrowers’ command over inputs for production or
consumption purposes.

The expanding demand for financial services: Improved or new technologies provide
farmers with opportunities to invest in higher return opportunities. Technological
changesand agricultural development also introduce greater heterogeneity into farm and
rural households, creating cash surpluses and savings in some and greater credit needs in
others. Thus the demand for saving opportunities and for credit increases the need for
more financial intermediaries.

2.2 Sources, Purposes, Security, and Time periods of loans

Sources of loans are limited. The dominant sources of loans in developing countries are
informal ones including friends, relatives, for they are quick and need no or small
collateral, less paper work, and less transaction cost.

Loans are used for productive and non- productive purposes, and are available for short
or long period of time. The fungibility nature of credit implies the importance of
availability of productive investment opportunities to use the credit for high – return
opportunities. Security or collateral arrangement is an important aspect in availing loan.

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Interest rate charged on loans lent in many developing countries is explained mainly by
lending costs. The components of these costs are opportunity cost of the money,
transaction and administrative costs and risk premiums.

It is generally true that in the long run developing saving institutions that can accumulate
large amount of voluntary savings from rural people is the soundest source of increased
rural and agricultural credit. Saving performance of rural households can be improved
through:

 Availability of loans with realistic interest rate (ideally unsubsidized):

 Effective mobilization of savings by financial institutions: Mobilization of

savings increases the financial stability and health of financial institutions:

 Tying credits obtained from the institutions with the amount of savings
accumulated. This way the institution could attract savers also by providing
better services to them and by taking more measures that encourage high loan
repayment rate.

Actions that help rural households to increase rural savings include:

 Maintaining real interest rates through regular adjustments for changes in the rate
of inflation;

 Reducing saver’stransaction costs by reducing paper works and waiting times,

opening branches closer to residences, and establishing postal savings at nearby
post offices;

 Insuring individual savings accounts; and

 Building credit cooperatives can also contribute significantly to generating rural

savings and augmenting rural credit cooperatives.

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? Dear learner, what policies need to be followed to improve ruralfinancial
markets?

Important policy considerations to strengthen rural financial markets include:

 Identifying financial market problems:

 Assuring interest rate flexibility to attract savings. Interest rate must be

adjusted with inflation;

 Reducing subsidized credit for agriculture; and

 Reducing costs of financial intermediation. Reduce the cost of credit and

saving transactions both for farmers and the lending institutions.

Some institutional arrangements of agricultural credit that facilitate growth and diversity
of credit service include:

1. Group lending (borrower group): This mechanism offers farmers an opportunity

for lower interest rates, price discounts on inputs, and lower loan transaction
costs. In group-lending, members are fully liable for individual defaults, and
group security against default can be achieved through an advanced deposit.

2. Specialized government farm credit

3. Credit from input suppliers and marketing organizations

 Activity-13

1. What are sources of loans (credit)?

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
___
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2. Identify the purposes of credit (loans)?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
 Section Three

Rural Institutions: Cooperative Institutions

µ Section Overview
Dear learner, in this section you are going to deal with cooperative institutions. Hence,
the meaning of cooperatives and their implication for rural development will be assessed.

Section Objectives

Upon the successful completion of this section, you will be able to:

106
  Define cooperatives
 Explain the link between cooperative institutions and rural development

3.1 Cooperatives

? Dear learner, what are cooperatives?

Cooperatives are system of economic action and business enterprise, characterized by the
absence of the profit motive and involving, as its primary function, the distribution of
goods and services. Traditionally, it is a movement of consumers who unit on the basis of
their mutual interest in reducing living expenses and benefiting from the ownership and
control of production facilities and of accommodations shared by all. Some cooperatives,
however, serve the interests of people functioning as producers, not as consumers.
Producers' cooperatives include associations of workers who cooperatively own and
operate factories or farms. Producers also form associations for the purposes of
economically purchasing supplies and of profitably marketing their produce.

3.2 Cooperative Institutions and Rural Development

? Dear learner, how do cooperative institutions contribute to rural development?

As resource costs and product prices change and as more productive technologies become
available, new and modified institutional arrangements will be demanded in order to
enhance positive changes and control negative trends and costs. Cooperatives can bring
farmers new economic opportunities and increased control over their economic
environment. Cooperatives can often lead to greater influence in political arenas, also.

107
The intuitional form of the member-controlled cooperative was developed by the
Rochdale in England in 1844 and by Raifeissen credit cooperatives in Germany about
1860. Three basic principles define these institutions:

 control of the cooperative through one vote per member, with membership
open:

 alimit on the return retained by the cooperative from capital investment; and

 the return to members of any savings or surplus, on the basis of the volume of
business engaged in by the members.

Quasi-cooperatives incorporate at least one of these principles.

For the individual, the economic inducement for participation in a member-controlled

cooperative is that more benefits will be obtained, such as lower input prices, easier
access to more productive technology, and increased availability of farm and consumer
goods and credit. Cooperatives are complex business organizations that include
objectives, and organizational structure, and specified methods of operation and financing
that require member accounts. A strong central cooperative organization is usually
required to support local cooperatives.

Cooperatives and development: Cooperatives aid farmers in many nations to increase thie
income. Generally cooperatives are economic enterprises. They can succeed only to the
extent that they successfully meet or exceed the competitor’s economic performance.
They may be achieved through reduced transaction costs, joint assurance on unsecured
loans, and in other ways.

 Activity-14

1. Define cooperatives? 108

______________________________________________________________
______________________________________________________________
______________________________________________________________
 Section Four

Land Rights: Land Tenure Arrangements

µ Section Overview
Dear learner, in this section you are going to deal with land tenure arrangements and land
reform. .

Section Objectives

109
Upon the successful completion of this section, you will be able to:

 Define the concept of land rights

 Explain types of land tenure arrangements
 Identify the nature of land reform

4.1 Property Rights in land: Land Tenure

? Dear learner, what is land tenure?

Dear learner, land tenure is about property relations in land and their administration. It is
also defined as ‘a system of relations between people and groups expressed in terms of
their mutual rights and obligations with regard to land. Others define it as the methods by
which individuals or groups acquire, hold, transfer or transmit property rights in land.
Formal rules of tenure, therefore, define the nature and content of property rights and
determine how society will allow individuals or groups to hold property rights in land or
other resources and the conditions under which those rights are to be held and enjoyed.

Ownership, use and transfer rights are among those important dimensions of property
rights in land. Theoretically, the greater the number of rights conferred by the tenure
arrangements, the greater the real or potential value of the land resource to the holders.
Ownership denotes the relation between a person and any right that is vested in him. That
which a man owns is in all cases a right. And to own a piece of land means to own a
particular kind of right in the land.

Use right include the right to grow perennial crops, grow annual crops, make permanent
improvements, collect firewood and wild-fruit, cut trees, graze livestock, and others,
while transfer rights include right to sell, give, mortgage, lease/rent, bequeath, register
and others. Moreover, transfer rights were assumed to imply greater security than use
rights. Again, among transfer rights, rights of permanent transfer were assumed to be
superior to rights of temporary transfer. And, among permanent transfer rights, the right

110
to sell was assumed to be superior to the right to give, which, in turn, dominates the right
to bequeath.

In terms of incentives related to land use, it is argued that secured property rights provide
agents with incentives to use land efficiently and to invest in land conservation and
improvement while uncertainty or risks to the possession of land right will negatively
affect production and investment. Land transaction generally increase efficiency in
resource allocation, because agents with high marginal productivity of land acquire land
from agents with low marginal productivity. Secured land rights are also explained as
influencing credit transitions by way of collateral arrangements.

? Dear learner, what is tenure security?

Secure of rights is among those important considerations in land tenure policies. Security
of tenure implies the ability of a farmer to cultivate a piece of land on a continuous basis,
free from imposition, dispute, or approbation from outside sources, as well as the ability
to claim returns from input or land improvements while the farmer operates the land and
when it is transferred to another holder. Land tenure security was said to exist when an
individual perceives that he or she has rights to a piece of land on a continuous basis, free
from imposition or interference from outside forces, as well as ability to reap the benefits
of labor and capital invested in that land, either in use or upon transfer to another holder.
In this case therefore security of tenure involves the perception of a farmer about his
rights over a particular parcel of land.

There is a widespread belief among development specialists that tenure security is an

important condition for economic development. Secure rights based on economic theory
are believed to:

 Increase credit use through greater incentives for investment, improved

creditworthiness of projects, and enhanced collateral value of land

 Increase land transactions, facilitating transfers of land from less efficient to

more efficient uses by increasing the certainty of contracts and lowering
enforcement costs

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  Reduce the incidence of land disputes through clearer definition and enforcement
of rights, and

 Raise productivity through increased agricultural investment.

4.2Land Rights: Land Tenure Arrangements

Different arrangements of rights to the use of land will be induced by different cultures,
under different economic conditions, at different times in history. In induced innovation
model, demand for changes in institutional arrangements is endogenous or exogenous to
the economic part of a social system.

When land is plentiful, the territory controlled by a social group over circumstances, the
rights to the use of land is likely to be determined by membership, or status in a group,
and by use. Different distributional and productivity outcomes arise from the varied rules
for the control of resources. Different land holding arrangements include:

i. Traditional communal land ownership, use rights, and shifting cultivation:

This arrangement involves social control of the land with periodic or hereditary
reallocation of land for use by farming families;

ii. Family or individual farming: This arrangement, with full ownership or life
time tenure rights, or with various forms of short-term tenancy, predominates in a
number of less developed nations:

iii. Integral or cooperative farming: The income from the farm is distributed on the
basis of the ownership of the three sets of productive resources: land, labor and
capital;

iv. Collective farming: This is done with assumption that greater agricultural
productivity, more equal income distribution, and better control of agricultural
sector are achieved by transferring land to collective ownership and operation.
The income of the collective is distributed to members based usually on some

112
 measure of labor contributed. Communes of china, is a particular from of
collective farming, until 1978.

v. The true commune: The arrangement provides the most social control, with all
production under group control and a large amount of goods and services
provided on the basis of need through group-operated central dinging halls,
nurseries, recreational facilities, and public housing, with small individual cash
allowances to members for personal needs. These types communal ownership
require special conditions and motivation (e.g. religion based, monastery farming,
Kibbutzim of Israel).

4.3Land Reform

? Dear learner, what is land reform all about?

Land reform involves redistribution of rights in land and supporting measures that are
necessary to achieve the following three objectives: social justice, political health, and
agricultural output expansion. Land reform may need to include: (i) surveying and
granting title to lands currently farmed: (ii) land consolidation programs, in which pieces
of land are rearranged for more productive use with the objective that each farmer have
the same amount and quality of land that he/she had before; and (iii) land settlement
programs, in which government land is transferred to settlers.

In the induced innovation perspective, land reform is not a precondition of productivity

growth in agriculture but rather a response to the new economic opportunities provided
by technological change and to changes in the relative prices of agricultural inputs and
products. However, political and cultural conditions or endowments (land reforms
programs, revolution etc) of a society may cause a government to act, exogenous to
economic forces, to change landholding institutions and land distribution in order to
move toward distributional or other social goals.

Empirical experience (e.g. land reform in Taiwan) demonstrated that land reform is
accompanied by social changes. These include: personal relationships become more

113
business like; elimination of favor seeking and extra payments by tenants in land renting;
a shift from hierarchical to horizontal social relations among farmers. Land ownership is
no more a factor for local leadership position, education, integrity, and other factors
become more important for such local leadership. Thus, in Taiwan, a shift from insecure
share tenancy to ownership of tilled land was associated with very significant social and
political gains for farmers. These are a revolution in the marketing of agricultural
products in the cities; a shift of industry in the production of simple agricultural
equipment and consumers’

 Activity–15

1. What is land tenure?

_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
___

2. Identify the types of land tenure arrangements

_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
___

3. What does land reform involve? 114

_____________________________________________________________________
_____________________________________________________________________
 Section Five

Rural Markets and Marketing

µ Section Overview
Dear learner, in this section you are going to deal with markets and marketing. Hence,
This section comprises the meaning and roles of market, and the concept of marketing
and its function.

Section Objectives

115
Upon the successful completion of this section, you will be able to:
 Define what markets are all about
 Identify the role of markets in agricultural/rural development
 Explain the concept of marketing
 Identify the functions of marketing

5.1Markets

? Dear learner, what is market?

Market refers to any established operating means or exchange for business dealings
between buyers and sellers. As opposed to simple selling, a market implies trade that is
transacted with some regularity and regulation, and in which a certain amount of
competition is involved. The earliest markets in history conducted bartering. After the
introduction of money, commercial codes were developed that ultimately led to modern
national and international enterprise. As production expanded and became less practical,
communications and so-called middlemen came to play an ever growing role in markets.
Types of markets include retail, wholesale or distributors', producers', raw material, and
stock.

The term market is also used to denote a place where goods are bought and sold, and to
refer to potential or estimated consumer demand.

? Dear learner, what are the roles played by markets?

Rostow (1964) emphasized the important role of markets in agricultural/rural

development and identified four market related tasks. These are a revolution in the
marketing of agricultural products in the cities; a shift of industry in the production of
simple agricultural equipment and consumers’ goods for the mass market; and a
revolution in marketing methods for such cheap manufactured goods, especially in rural
areas.

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5.2 Marketing

? Dear learner, are markets and marketing synonymous?

No. Marketing is the process by which a product or service originates and is then priced,
promoted, and distributed to consumers. In large corporations the principal marketing
functions precede the manufacture of a product. They involve market research and
product development, design, and testing.

5.2.1 Marketing Problems and Functions

Agricultural marketing services in many less developed nations are costly and exhibit
relatively low productivity. Storage losses are high; a large amount of resources,
primarily labor, are often required to move a ton of agricultural product short distances;
and the few processing activities available use many resources per unit of product
processed. This section deals with both input and product marketing in the context of
growing economy.

The relative neglect of marketing in developing countries probably reflects a combination

of factors, including a general lack of knowledge about the complexities of market
process and the role of private sector in essential marketing functions; a widely held anti-
middlemen attitude; and a realization of the politically sensitive nature of price policies
and public sector intervention in food marketing.

5.2.2 Economic Functions of Marketing

Different marketing textbooks present the following four economic contributions of

marketing.

1. Storage or time utility. As most agricultural crops are produced during a

short harvest period but consumed over extended periods of time, storage is
undertaken to maintain a product in good conditions until needed. Storage uses
resources – land, labor, and capital –that the consumer has to pay.

117
 2. Movement or place utility. The movement of large amounts of agricultural
products from farming areas to consumers usually includes some form of
packaging, to prevent damage or loss, and transportation. These activities also use
scarce resources.

3. Processing or form utility. Processing involves a change in the form of the

agricultural product after harvest. Consumers very often will pay a higher price to
reduce home processing costs and preparation time.

4. Marketing management. To perform marketing functions, management

activities are required. These include (i) gathering information on prices and
government or market regulations: (ii) testing product quality: (iii) accounting;
and (iv) making financial arrangements, including those for credit use and risk
reduction. Managing marketing uses resources.

5.2.3 Marketing and Economic Growth

Economic growth causes the following three changes in an economy, increasing the
demand for marketing services; (i) increases in regional specialization: (ii) increases in
the marketing of agricultural inputs and products between farms and the rest of the
economy, as the commercialization of agriculture augments agricultural productivity; and
(iii) the shift of people out of agriculture and into urban areas.

As an expanded and more complex farm input supply system develops, agriculture’s
backward linkages to the economy grow. As the agricultural transformation proceeds, a
greater proportion of farm production is sold in order to pay for a greater amount of
agricultural inputs. In this way, forward linkages are increased to the rest of the economy
through an expanding agricultural change in farm production also requires a revolution in
agricultural input and product marketing.

Increases in consumer incomes and urban population associated with economic growth,
can lead to an explosive increase in the demand for marketing services for agricultural

118
products hence, increasing forward and backward linkages between agriculture and the
rest of the economy occur with economic growth.

5.2.4 The Role of Marketing in Development

Generally it is recognized that with economic development we can expect a long- term
shift in marketing structure, from an immense number of small-scale agricultural market
participants, to smaller numbers of large-scale marketing firms. The larger firms arise
because they can take advantages of economies of scale through specialization or vertical
integration, thereby reducing costs and enhancing performance.

Rostow proposed a national marketing strategy with four major tasks to be accomplished
(1) a build-up of agricultural productivity; (2) a revolution in the production of
agricultural equipment and consumer’s goods for the mass market; and (3) a revolution in
marketing methods for such manufactured goods, especially in rural areas. Rostow
considers that action by government to use national resources to improve agricultural
marketing and the marketing of industrial goods in rural areas would result in high-return
investments for a less developed economy and would also contribute to a more desirable
economic growth pattern.

 Activity – 16

1. What is market?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

2. Identify the roles of market in rural development?

__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

3. Define the concept of marketing

__________________________________________________________________________
119
__________________________________________________________________________
__________________________________________________________________________

4. Elaborate the basic functions of marketing

 Section Six

Informal Rural Institutions

µ Section Overview
Dear learner, not all institutions are formal. There are informal institutions working along
with the formal ones. This section therefore deals with the meaning and components of
informal institutions, and their contribution in rural development.

Section Objectives

120
Upon the successful completion of this section, you will be able to:
 Define what informal institutions are all about
 Identify the components of informal institutions
 Identify the contributions of informal (indigenous) credit and insurance
institutions in rural development

6.1 Informal Institutions

? Dear learner, do you have any idea about informal institutions?

Informal institutions or constraints come from the cultural transmission of values, from
extension and application of formal rules to solve specific exchange problems, from the
solutions to straightforward coordination problems. For instance, effective tradition of
hard work, honesty and integrity simply lower the cost of transacting and make possible
complex productive exchange. The past and existing cultures are the major source of
informal institutions (constraints). The historical experience (traditional /modern) and
path followed in institutional and economic development usually shape the direction and
efficiency of new institutional changes.

? Dear learner, what are the components of informal institutions?

The informal institutions are rooted on the characteristics of cultural components. The
important cultural components and their definitions are briefly outlined as follows.

Culture:as used by many social scientists refers to the whole collection of agreements
that the members of a particular society share. It includes the shared points of view that
define what is true and what is good and what kinds of behavior people can expect of one
another-but which might seem very strange to an outsider.

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Symbols:are short hand representations of the shared knowledge and understandings of
a group of people, such as national flag, the dove of peace the Christian cross, the Islamic
star and crescent, the worddemocracy and communism.

Beliefs: are agreements about what is true.

Values: are agreements about what is preferred. They compose the overarching
umbrella of agreements under which a society operates.

Status:describes the social locations a person holds in an organization or social system.

A person usually holds a number of statuses at the same time, such as mother, wife, or
leader of a village’s women group. Status position may be assigned (ascribed) without the
person’s doing anything, such as the status of women, or an Asian; or they may be
achieved (learned) by actions, such as the status of a student, athlete, or physician.

Role: when a person puts the rights and duties associated with the status into effect, he
or she performs the role. Role describes what a person does; a student’s role is described
as to go to class, study, and take exams. Roles are agreed upon expectations of behavior
by people who occupy given statuses.

Norms of behavior: are the expectations or rules of behavior that the society agrees
members holding different statuses should follow.

Sanctions: are the elements of culture used by a group to attempt to assure the
behavioral norms are followed. They can be either positive or negative. In a learning
framework, positive sanctions or rewards reinforce or encourage behavior, consistent
with norms. Negative sanctions or punishment discourages sociallyundesirable behavior.

Artifacts:refer to material things produced by a culture, such as its art, technology

furniture, and buildings.

6.2 Informal Institutions and Rural Development: Informal

(Indigenous) Credit and Insurance Institution

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Many developing countries rely much more on informal mechanisms for credit and
insurance than do developed countries. In Ethiopia a considerable population relies on
‘Iqqub’ and ‘iddir’ for provision of credit and insurance, respectively. The informal
institutions have remained popular among the bulk of the population of many developing
countries because they operate at a lower transaction costs and its default rates are low.
Studies indicate that in Bangladesh 63% of total credit comes from the informal sector; in
Malaysia 70% of the total borrowing comes from the informal sector; in Nigeria 95% of
the farm loans come from the informal sector, while in Ethiopia about 78% of the farm
loans come from the informal sector.

Informal institutions in developing countries involved in credit supply include: (i) loans
from friends, relatives and community members, (ii) rotating saving and credit
associations (RSCA), (iii) money lenders and informal banks, (iv) tied credit (i.e. inter-
linked market in which landlords, merchants or shopkeeper provide loans to a person
with whom they have a non-lending relation, and (v) pawning (leave as a guarantee in
return for money). In Ethiopia all the instructions are important in various degrees. Since
there is no infallible way to gauge the true intentions of the borrower, credit transaction
entail trust (based on value and norms of the culture shared by the community) in
fundamental way.

Transaction in the future may entail rise to problems of uncertainty about the behavior
and credit worthiness of borrower. These problems can be classified into problems of
adverse selection (not knowing what sort of person one is dealing with),and problems of
moral hazard (not knowing what actions an agent will take if a contract is sealed). The
former is basically a problem of hidden information, while the latter is a problem of
hidden action.

In the case of informal financial institutions (e.g. ‘Iddir’ and ‘Iqqub’ in Ethiopia) few
personal attributes of any economic significance are hidden. In this case problem of
hidden action (moral hazard) may be more important than problems of hidden
information. Some researchers suggest four mechanisms designed to circumvent

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difficulties arising from the limitations of inter-temporal trade (e.g. informal credit
institution). These are:

 Collateral (including peer pressure or social collateral):

 Reputation (tying loan terms and access to credit markets to past behavior);

 Social enforcement (i.e. social sanctions-based moral codes); and

 Multilateral trading relations (encompassing elements of reputation and social

enforcement).

 Activity – 17

1. Define informal institutions?

__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
2. Identify the components of informal institutions?
__________________________________________________________________________
__________________________________________________________________________
_________________________________________________________________________
3. Explain the link between informal institutions and rural development
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

Unit Summary

Dear learner, this unit has discussed about institutions. Accordingly, you have defined
institutions as the social rules that facilitate coordination among people by helping them
for expectations to dealing with each other. Economic development is conditioned by the
prevailing institutional arrangements, be it formal or informal. Needless to say,
institutions are the determinant factors for agricultural/rural development.

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Dear student, some of the formal rural institutional arrangements we have just discussed
include: rural finance and credit institutions, cooperatives, land tenure arrangements, and
rural markets. They are of paramount importance in the process of rural development but
they are facing such a daunting challenge that calls for keen inspection and prudent
measures. As far as the informal institution is concerned, they come from the cultural
transmission of values, from extension and application of formal rules to solve specific
exchange problems, from the solutions to straightforward coordination problems.

Check List

Direction:Dear students this is the section in which you confirm your understanding
of the lessons in this unit. Put a tick mark ( ) in the yes column for activities that you

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have clear understanding and in the no column for activities that you doubt that you
have no good understanding so that you can go back to the lesson and learn again.

I Can: NoYes
 Define institutions
 Explain the importance of rural credit institutions
 Explore the link between cooperatives and rural development
 Assess the importance of land tenure arrangements
 Identify the nature of rural markets and marketing
 Define informal rural institutions

Self test exercises

Part I: Choose the best answer from among the given alternatives
1. Of the following, one couldn’t be the reason as to why many developing
countries rely much on informal institutions than formal channels?
A. The reluctance of the people in opting for the formal channel
B. The high transition costs of the formal institutions
C. The top-down nature of development approach
D. The life of the people are firmly embedded in the informal institutions
E. All except A.
2. The type of cultural-induced informal institution dealing with agreements about
what is true is_____________
A. Values B. Beliefs C. Norms of behavior
D. Role E. Sanctions
3. Which of the following is necessarily true?
A. Culture and institution are mutually exclusive
B. Cultural change is a sufficient condition for institutional change
C. Institutional change is a sufficient condition for cultural change
D. Economic growth is conditioned by culture and intuitions.
E. All

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 4. Which of the following is necessarily true?
A. Institutions are the sole component in Organization
B. Institutions refers to the rule of the game, while organizations are the players
C. Organization is part and parcel of institutions
D. Organizations spell out the interior nature of institutions
E. All
5. The superior of all land tenure right is_______________
A. Transfer right D. The right to sell
B. Rights of Permanent transfer E.The right to hold
C. Usufruct right
6. The type of land tenure arrangement mostly practiced in monastery farming
is called___________________
A. Traditional Communal land ownership D. Collective farming
B. Family or individual farming E. Integral cooperative farming
C. The true commune

Part II True or False

_______1. The rules that contradict the morals of the people would not be sanctioned
socially and if stipulated formally, would not function effectively.

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______2. Institutions are rules of the game, and organizations and their entrepreneurs are
the players.

______3. Marketing is the process by which a product or service originates and is then
priced, promoted, and distributed to consumers.

______4. The dominant sources of loans in developing countries are informal ones

______5. Institutions affect human choice by influencing the availability of information

and resources.

Part III Short answer

1. Discuss the typical roles played by rural institutions (both formal and informal) in
alleviating rural poverty.

UNIT FIVE
AGRICULTURAL TECHNOLOGY

Introduction
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Dear learner! Welcome to unit five of the module. It deals with agricultural technology
development and transfer. In the preceding unit, due attention has been placed on
institutions as a determining factor for agricultural/rural development. However,
institutions are only a necessary factor, not a sufficient factor in rural development.
Technology is also deemed to be indispensable.

Thus technology is the knowledge applied by human beings to improve production and
distribution process, and its objective is to achieve greater output from a given amount of
land, labor, and capital resources. Agricultural technology is not an exception. The major
role of agricultural technology is enhancing production by improving productivity of
resources and inputs employed in production. It enables, among others greater production
per given quantity of inputs.

Dear student, this unit is therefore divided into three major sections. The first section
deals with conceptual elements of technology. The second section focuses on
characteristics of Agricultural Research and Development (R & D). Finally, approaches
to Agricultural research and Extension arethoroughly dealt in section three.

Unit Objectives

After completing this unit, you are expected to:

 Explain the meaning of technology
 Identify the sources of agricultural technology
 Identify the impacts of agricultural technology
 Explain the characteristics of Agricultural Research and Development (R & D)
 Identify the approaches to agricultural research and extension

ðPre-test Questions
 What is technology?
 What are sources of agricultural technology?
 Have you ever felt the impacts of agricultural technology?
 What is Agricultural Research and Development all about?

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  What approaches need to be pursued in order to make agricultural research and
extension successful?

Section One
Conceptual Elements of Technology

µ Section Overview
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Dear learner, welcome to section one of this unit. In this section, you are going to deal
with the meaning, nature, sources, roles and impacts of agricultural technology.

Section Objectives
Upon the successful completion of this section, you will be able to:
 Define technology
 Identify sources of agricultural technology
 Identify roles of agricultural technology

1.1 Definition of Technology

? Dear learner, what is technology?

There are various definitions of technology. It can be understood for instance as methods
or techniques to enhance production frontier, or as a method of using
resources/endowments to produce goods and services. It is a practical use of human
knowledge. It involves also turning natural items into useful products. Thus technology is
the knowledge applied by human beings to improve production and distribution process,
and its objective is to achieve greater output from a given amount of land, labor, and
capital resources. Technology is also inventions of new and better ways of doing things
that enables firms/farms to produce more from any given amount of inputs.

Technological change is understood in general as a movement from one technological

state to another, while technological progress is considered to be a movement from a
lower productive state of arts to a higher productive state of arts. Adoption of new
technology or a technology not used before in the production process results in
technological change.

? Dear learner, can you list down the types of agricultural technology?

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Technology can be classified into different types on the basis of different criteria.
Technologies are grouped into four types depending on their nature. These are: (i)
Biological technology, for example seeds and improved animal breeds: (ii) Chemical
technology, example chemical fertilizer; (iii) Mechanical technology, example farm
implements and machines; and , (iv) Managerial technology, example method of land
preparation and time of planting or method of farm organization.

Technology can also be grouped into (i) Hard or Embodied type, referring to technologies
embodied in material inputs, example seeds and implements, and (ii) Soft or Non-
Embodied type that refers to technologies not embodied in material inputs, example
organizational and managerial innovations.

1.2 Sources of Technology

? Dear learner, where do we get agricultural technologies?

Two sources of agricultural innovations can be identified: formal and informal sources.
The formal sources include formally organized public or private institutions operating at
international or national levels. These are organization formed with primary objective of
conducting research to generate technological innovations for use by end users or for use
for further research activities. For instance the current national organization of
agricultural research in Ethiopia is EARO (Ethiopian Agricultural Research
Organization). Regional research organizations like Oromia Regional Agricultural
Research Institute (ORARI), Amhara Regional Agricultural Research Institute (ARARI),
Tigray Regional Agricultural Research Institute (TRARI) etc. are also important formal
source of agricultural technologies. International Agricultural Research, led by
consultative Group for International Agricultural Research in an important international
body involving about 16 international research centers or institutes, are involved in
agricultural and development-oriented research (e.g. CYMMYT, ICARDA, ICRISAT,
IFPRI, ILRI).

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Informal sources of agricultural innovations include farmers who learn and innovate by
doing. NGOs involved in development programs and projects and other development
workers or extension agents involved in the dissemination of technologies. A typical
example is soil and water conservation practices employed by ‘Konso’ farmers in
Southern Ethiopia and diffusedlight Storage system employed by Peru farmers to protect
potato from storage diseases like potato blight.

1.3. Rolesof Agricultural Technology

? Dear learner, do you know the roles played by agricultural technology?

The major role of agricultural technology isenhancing production by improving

productivity of resources and inputs employed in production. It enables greater
production per given quantity of inputs. That is increasing production efficiency as a
result of technological change.

? Dear learner, can you mention other impacts of agricultural technology?

Other impacts include:

 Altering cropping pattern and resource allocation. Some crops could be
abandoned, while other get increasedattention in terms of land and labor
allocation. For instance, due to adoption of green revolution technologies for
maize, rice and wheat in Indian sub-continent, decline of land allocation for
pulses and horticultural crops was observed in early 1970s.
 Technology could change the product characteristics like nutrition content of
crop varieties, shelf life of grains, and length of growth season (e.g. short
maturing sorghum variety).

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  Some production technologies have a role of reducing production risks. An
example is irrigation technology that reduces risks associated with rainfall
failure.
 Technology also enables efficient use of other resources like nutrients, farm
machines and labor. For instance, irrigation water helps to use chemical
fertilizer and labor more efficiently.
 Technology can also have negative impacts. Tractor use may have negative
impact on soil structure; agrochemicals may result in pollution of underground
water hazardous residual effects on health.

 Activity – 18

1. What is technology?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

2. Identify sources of agricultural technology?

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

3. What are the roles (impacts) of agricultural technology

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

Section Two

Agricultural Research and Development (R&D) and

Technology Adoption

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µ Section Overview
Dear learner, this section deals with Agricultural Research and Development (R&D) and
Technology adoption.Specifically, it comprises of the meaning of Research and
Development (R&D),

Section Objectives
Upon the successful completion of this section, you will be able to:

 Define the concept of Research and Development (R&D)

 Identify the characteristics of Agricultural Research and Development (R&D)
 Explain factors affecting technology adoption
 List down the principal considerations for research policy and management

2.1 Characteristics of Agricultural Research and Development (R&D)

? Dear learner, what is Research and Development (R&D)?

Research and Development (R&D) refers to process undertaken by organizations before

the launch of a product. Research is usually scientific research into materials and
production processes. Product development is application of that research to the
development of existing or new products.

? Dear learner, can you identify the characteristics of Agricultural Research and
Development (R&D)?

Agricultural R & D is a complex process characterized with multiple features. This

section outlines these characteristics and general adoption factors.

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  Uncertainty associated with research and technology
Research results are usually less predictable, for some time the outcomes may not
correspond with the desired traits or could be accompanied with undesirable
characteristic. For example, high yielding varieties could appear to be less resistant to
diseases and other constraints.

Capability, experience, training and motivation of researchers is variable and

inconsistent. High turnover of researchers, example in EARO centers in Ethiopia may
have consequences of instability and discontinuity in technological path, approaches and
results. Lack of systematic incentive system for researchers aggravates the problem of
instability and discontinuity in research process.

Organizational and administration structure of research systems influences the flexibility

and freedom of researchers. Bad governance of research systems influences the flexibility
and freedom of researchers. Bad governance of research organizations may result in
instable research process and high turnover of researchers and poor incentive system. All
these may in turn result in unpredictable pathway and achievement possibilities in the
research organizations.

Insufficient knowledge about factors that influence use and returns of alternative
technologies may aggravate the uncertainty nature of research efforts. This implies the
importance of projecting the potential adoption and profitability of technologies along
with designing technology development and before the release of the technology for use
by the end users.
 Time consuming agricultural research and diffusion
Technology development and diffusion takes a considerable time as it passes from
initiation of technology development to last stage of utilizing the technology. Thus, three
stages are identified:
(i) Form initiationto the completion of the actual research activities;

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 (ii) From the time research results are available until they are tested, combined
and transformed to useable technology; and
(iii) From the time the technology is available until it is adopted by farmers and
introduced into the production process.

These stages under developing countries seem to take long time as it is compounded with
inefficiency of institutional and procedural operations. Today, biotechnology and gene
engineering have important role in facilitating and speeding-up research process.

 Interaction with other factors of production

An increase in efficiency of production factors may be influenced by the use of other
types of new technology (e.g. improved crop varieties along with fertilizer; fertilizer and
irrigation), implying the need to develop and promote technology package.

 Production environment
The efficiency of agricultural technology depends on the production environment in
which it is applied. An agricultural technology is therefore location or environment
specific. In a country like Ethiopia where agro-ecological variation is immense within
short distances (say 10-30Km), location specific adaptive research is of a paramount
importance.

 Externalities in research
Research activities and process is not free of influence from sources external to the
research system. An important related question in this regard is when and to what extent
would it be in economic interest of a group of farmers or other domestic/foreign groups
(e.g. private firms of agrochemicals, World Bank etc). For example, agrochemical firms
may influence research centers or researchers to be involved in pesticide screening and
on-farm testing directly or indirectly.

2.2 Technology Adoption

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Adoption of technology by end users is usually preceded by technology dissemination
efforts. Adoption decision of farmers is influenced by multiple factors and farmers’
perception of the factors. These factors include:

 Technology suitability for given biophysical and climatic conditions, and farmers
perception of the suitability of the technology.
 Economic profitability of the new technology and farmers perception whether
adoption of the technology adds to the farmer’s net economic return.
 Contribution of the technology to various needs and goals of farmers (e.g. risk
minimization, food security, cash need etc); and farmers’ perception whether
adoption of the technology to the achievement of these goals.
 Other constraints of adoption include poor institutional service like extension,
credit, marketing and resource tenure.

2.2Some Principal Consideration for Research Policy and Management

Agricultural technology is considered to be central and necessary component of any
agricultural development strategy in developing countries. The main reason for limited
use of the potential of agricultural research is insufficient understanding of the nature of
research results and the process of effective utilization of agricultural research and
technology. Improved knowledge of how technology support services, infrastructure and
incentives interact, and how priorities among them should be derived would set the
framework for specific research policy.

Acts of producing and disseminating technologies and technological information are

inseparable. Producing of technologies is carried out in view of the feasibility of diffusion
and use of the technology, where as dissemination of technologies come up with feed
backs on the requirements of the technology and as a useful input in designing
technology generation process.

Participation of farmers in the research process enhances generation of demand-based

appropriate technologies. Farmers’ indigenous technical knowledge and technological
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solutions could provide useful basis for incorporating farmers’ knowledge and
innovations in formal research process and for on-farm experiments.

Participatory research is considered to be a useful approach for the contexts of

developing countries where indigenous knowledge pervades the local production
activities. Participatory research requires:

 Decentralized technology development in order to address research needs of

diverse socio-economic and agro-ecological niches:
 Devolving to farmers the major responsibility of adaptive testing (community-
based adaptive research;
 Making institutions and individuals accountable for the relevance and quality
of technology on offer.
 Stimulating private research by placing government contracts with researchers
and introducing and/or rationalizing the patent system and practices.

 Coordinating research activities and controlling duplication of R &D efforts

would contribute to efficiency of research process.
 Creating attractive environment for innovation, education and training
schemes enhances sustainable growth of efficiency of research process and
development of appropriate, productive and economically viable technologies.

 Activity – 19

1. What is Research and Development (R&D)?

____________________________________________________________________________
____________________________________________________________________________
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____________________________________________________________________________

2. Identify the characteristics of Agricultural Research and Development?

____________________________________________________________________________
 Section Three

Approaches to Agricultural Research and Extension

µ Section Overview
140
Dear learner, this section is concerned with approaches to agricultural research and
extension.

Section Objectives
Upon the successful completion of this section, you will be able to:

 Explain the frameworks of analysis of research and extension

 Identify approaches to Agricultural Research and Extension

3.1 Frameworks of Analysis of Research and Extension

Research and technology dissemination will achieve little unless accompanied by

changes in the broader economy. There is a need to identify necessary reforms relevant to
research and extension more systematically. Research and extension approaches have
been a principal discussion point in the past three-four decades, particularly for
smallholder agriculture based on less reliable rainfall. Although agriculture outside the
irrigated and reliably rain-fed areas have potential for substantial productivity increase,
but new technology will have to be tailored to the diverse and complex nature of agro-
ecological and socioeconomic conditions there. This needs, with the help of social
science analysis, designing of appropriate institutional approaches for research and
extension, and developing appropriate research methods.

Frameworks of analysis of research and extension need to consider different aspects,

including;

(i) Institution: Considering institutional context, within and outside the public
sector, in which innovations takes place is critical. The TOT conceptualization
and framework of agricultural research and extension is simplistic and
hierarchical, and is less relevant to complex and diverse rain-fed areas.
Anotherinstitutional aspect that needs consideration is rational land systematic

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 management methods for improving the efficiency and client-orientation of
research and extension.

(ii) Environment and technology: Environment and its relation to agricultural

technology development is an important aspect to be considered in the research
and development of environmentally supportive technologies. Environment in
developing countries is diverse, complex and risk-prone. Technology needs to be
therefore profitable and environmentally sound.

(iii) Problem diagnosis and feedback: Continuous problem diagnosis

and feedback is essential from one level of technology user to others; for example,
from farmers to national research and extension services, and from these levels to
international centers.

(iv) Resource-poor regions: There is variation in costs of research to national

research and extension services, and from these levels to international centers.

(v) Resource-poor rural people: Resource poor and low-income farmers do

respond to new technology that is appropriate, low cost, low risk and does not
impose much new learning requirements. Empowering poor farmers to influence
the direction and content of research is important in the development of
appropriate technology. Poor farmers must be politically empowered in the
broadest sense if the demands on research agenda are to be sustained on a more
profound and enduring basis. In order to facilitate the empowerment dimension
the political nature of demands on science and technology need to be defined and
refined. It also needs helping farmers to articulate their demands on research
agenda through participatory approach. Accountability of research to farmers has
to be also defined.

3.2 Approaches to Agricultural Research and Extension

Different approaches have been proposed and some of them have been empirically
practiced in the past, followed by changes and modification as a result of experience and

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search for more effective and efficient approach. The approaches practiced can be
grouped into two broad groups: (a) conventional transfer of technology (TOT) approach
and (b) alternative approach – participatory approach.

3.2.1 TOT Research and Extension Approach

The approach has been dominant since 1950s. Its mode of operation is that scientists
based in research centers or institutes determine the agenda and develop agricultural
technology that is passed to extension service for dissemination (diffusion) among
farmers or users. The approach assumes that:

 Sufficient and appropriate agricultural knowledge and technology are

available at some places or centers ready for transfer. But, in most cases, what
is observed has been that technologies transferred are more appropriate to
large and resource-rich farmers.

 Non-adoption of technologies by farmers is attributed by the approach mainly

to ignorance and traditional beliefs of farmers.But, the counter argument is
that technologies for transfer are usually not consistent with physical,
economic, social conditions under which the farmers work.

Later in time, the experience and unsatisfied desire called for modification of TOT
approach. The central argument for the modification of TOT is based on the observation
of assumption that the major constraint to technology adoption is poor access of small
farmers to appropriate technologies. This implied the need for research-extension system
that resolves the inefficiency of the extension service. Training and Visit (T&V) system
was introduced in many developing countries (India, Bangladesh, Ethiopia etc) with the
sponsorship of World Bank in order to address the problem. The T&V system centers on
efficient extension service that delivers to farmers, timely and appropriate technology,
information, and skills. Periodical training of Subject Matter Specialists (SMS) by
researchers and development (extension) agents by SMS working with extension
departments, and visits by farmers of demonstration plots and DA’s contact farmers were
the two pillars of the system. The system is hierarchical in pattern such that knowledge

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and information flows from the top of the hierarchy, the researcher, to SMS through
training, and the SMS passes the knowledge and information to DAs, while DAs in turn
transfers the knowledge and skills he/she gained to his contact farmers, who finally
passes the message and skills to the follower (bottom unit of the hierarchy) farmer for
application. In this mode of operation, feedbacks have to flow from farmers through the
chain of inter-medium contacts back to the researcher/ research centers. This theoretically
helped researchers to understand circumstances of farming systems.

The T&V provided opportunities for researchers to get access to feedbacks

fromgrassroots farmers. The system increased the interaction between researchers,
extension workers and farmers.

A. Reasons for failure of the T&V system

The T&V system was later observed to fail short of the anticipated technological change
in the smallholder agriculture. The following are some of the reasons for the failure.

i. The system focused only on dissemination of technologies agriculture,

ignoring other aspects farmers’ complex reality;

ii. Extension recommendation often required expensive external inputs;

iii. Lack of human and material resource for sustainable systematic training of
extension agents;

iv. The contact farmers frequently do not pass the technological information to
small and poor farmers;

v. The expected continuous research findings were not possible because of lack
of capacity with researchers/institutions;

vi. Lack of effective linkage between research and extension because of poor
performance by subject matter specialists;

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 vii. Lack of effective linkage between research and extension because of poor
performance by subject matter specialists:

viii. Lack of motivation and morale with extension agents (i.e. the approach, did
not boost them),

ix. In general, the approach did not solve production problems of small farmers
because the basic tenets of the model are inoperative.

3.2.2 Alternative Approach –Participatory Research and Extension

The conventional TOT research and extension approach has not been successful as
expected. It remained top-down and linear in its orientation. The model is criticized
because it does not take account of the economic, social and institutional conditions
under which innovation actually take place. Observations shows that there are several
sources of technology, that research itself is being driven by economic and political
forces, and that every innovation process is bound to specific economic and institutional
circumstances.

A more recent idea of innovation theory concerns the social organization of innovation. It
builds on the observation that innovation requires different functions, the most important
ones being technology development, communication about problems and potential
solutions, and the adaptation and integration of new ideas into current practices.

A. Farming Systems Research and Extension (FSR&E) approach

The approach is developed in 1970s accommodating a systems perspective in developing

countries in Asia and Latin America. Later the approach was introduced to many African
countries. The approach focused on production problems of small farmers. The approach
recognizes that small farmers posses valuable knowledge and the importance of holistic
studies of indigenous production practices. The approach argues also that first-hand
understanding of farmers’ situation through different communication mechanisms, and
the participation of farmers in technology development.

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The technical committee of the Consultative Group for International Agricultural
Research defined FSR as research (i) focusing on the interdependence and inter-
relationships existing among the elements of farm systems, and between these and the
farm environment, and between (ii) aimed at enhancing the efficiency of farming systems
through agricultural research designed to facilitate the generation and testing of improved
technology.

The application of FSR &E approach in the developing countries during the 1970s and
1980s has made important contribution to research and extension process and activities,
including researchers were persuaded to work with other researchers and farmers;
researchers were persuaded to look at the farm in holistic manner and recognize farmers’
knowledge; and researchers were persuaded to be involved in on-farm research. In
general FSR became a key stepping stone to the emergence of farmer participatory
research under different names and categories like participatory technology development
(PTD), Client-oriented research (COR).

FSR application was however suffering from some weaknesses, requiring recasting into
more appropriate approach by avoiding its weaknesses. The problems and weaknesses of
FSR are as outlined below

 Farmers do not become an active partner. Farmers were excluded from

designing research activities, remaining a source of farm labor;

 Scientists have had problems of working in collaboration;

 Huge mass of quantitative data were gathered and shelved without immediate
analysis;

 Most FSR/E projects did not focus specifically on resource-poor farmers;

 Scientists lack skills for communicating with and learning from farmers; and

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  Problems identified through FSR and communicated to researchers were not
adequately addressed by the researchers in the research systems. Practically
FSR became a top-down approach.

3.2.3 Farmers’ Participatory Research (FPR)

The experience in FSR pointed out that research and extension approaches need to
emphasize participation of farmers and other stakeholders. The argument is based also on
the observation that for technical, environmental and social and other reasons,
agricultural science has had little to offer to small resource-poor farmers. FPR views that
lack of interaction between researchers and farmers as major weakness of previous
approaches including FPR. FPR therefore proposes working with farmers in order to:
identify urgent agricultural problems; develop appropriate technologies; and, tap into
farmers’ own agricultural knowledge. The challenge is the development of
methodologies for research that ensures the development and adoption of technologies
for sustainable production benefiting resource-poor small farmers. FPR is research
methodology under promotion with view of redressing this gap. FPR is therefore a
research and extension approach in which the farmer acts as a subject who investigates
measures and studies in collaboration with researchers. Its philosophy is embedded on the
notion that successful agricultural research and development must begin and end with the
farmer.

A. Characteristics of FPR

FPR aims to develop technologies to meet the production needs of small farmers.
Farmers participate in the entire process of research, starting from research problems,
planning and implementation. Research is conducted in the farmers’ fields identifying
problems, designing trials and evaluating research results under farmer’s context. On-
farm study and experimentation aid to determine the viability of technologies according
to farmer’s criteria. In here the scientist is an investigator, colleague and advisor. The
approach has a systems perspective and is founded on interdisciplinary collaboration
between researchers and farmers. Solutions then emerge from a holistic analysis, rather

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than from developing solutions along the lines of any specific discipline. FPR promotes
innovative methodologies and flexibility.

B. The underlying assumptions of FPR

 Farmers are rational in using resources;

 Farmers manage complex set of biological process;

 Farmers agricultural activities are determined by physical, biological,

economic, socio-political, infrastructural and policy factors;

 Farmers posses indigenous knowledge of farming systems and their

environment;

 Farmers’ have capacity for experimentation.

The underlying assumptions imply the need for demand-driven and problem-oriented
technology design and development. On-farm research is a key instrument employed in
FPR to develop and diffuse appropriate technologies.

C. Types of On-farm research

D. FPR approach emphasizes on-farm research and studies.

On-farm research can be classified into four types based on the nature and level of
participation of farmers in the on-farm research process. These described briefly as
follows.

i. Researcher-managed on-farm research

This is research done on farmer’s field or under farmer’s context to validate research
findings done at research center or experiment station. In here the researchersdesign and
implement the research and evaluate the findings. The relationship between the
researchers and the farmers is hierarchical in nature.

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 ii. Consultative researcher-managed on-farm research

Researchers interview farmers to understand farming systems and get information about
the problems and characteristics of the systems. Researchers then make decisions on the
solutions of the problem followed by designing and implementation of research. The
researchers finally evaluate the on farm research outcomes. Farmers are not involved in
the process directly. Farmers’ criteria of selection of options and solutions are not used or
included in the whole design and implementation of the research results.

iii. Collaborative on-farm research

In this type of on-farm research farmers and researchers work together in problem
identification. design, implementation of the research trials and evaluation. Here the
proposition is that indigenous knowledge ad science-based knowledge are combined in
on farm-research design, implementation and evaluation. Balanced participation of
farmers and scientists in, and control over, research process to achieve the objectives of
both groups.

iv. Farmer-managed participatory on-farm research

In this type of on-farm research farmers are the main actors in problem identification and
definition, research design, implementation and evaluation of research results. Here
scientists ensure farmers’ capacity is fully utilized. The scientists need to play a
significant role in linking farmers with information and information sources for which the
farmers expressed need, but whichare not locally available. Important caution to not
under such type of on-farm research is that: Farmers’ observation more valuable than
their explanation; and farmers criteria of selecting technologies are more exacting than
their experimental methods. In here much important observation or notion to be
emphasized is the complementariness and /or intermarriage of farmer’s indigenous
technical knowledge and science-based knowledge.

Methodological principles emphasized that FPR is

 Dynamic and iterative;

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  Interactive, with two-way information flow

 Flexible, by maximizing farmer participation;

 Multiple, using different techniques simultaneously; and

 Rapid, responding to farmers initiatives and aspirations

v. Stages of FPR

1. problem identification

 Observe, characterize and understand the contexts of farmers;

 Group farmers with similar characteristics, problems and potentials;

 Dialog with increased farmer participation;

 Use research resources with increased efficiency;

 Create opportunities for field day meetings with more farmers; and

 Use all potential to improve linkages between farmers, researcher and

extension.

2. Exploring and selecting potential solutions

Participants identify potential solutions from existing ones, or design to develop new
solutions.

3. Testing and adapting proposed technological solutions

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 On-farm research trials are designed to determine the best solution taking into account
farmers conditions and solution-selecting criteria.

4. Evaluation of the technology

This task is aimed to validate or negate research results under the wider context of the
client farmers.

 Activity – 20

1. Explain the frameworks of analysis of research and extension?

____________________________________________________________________________
____________________________________________________________________________
___________________________________________________________________________

2. Discuss the approaches to agricultural research and extension?

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

Unit Summary

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Dear learner, in this unit you have dealt with agricultural technology development and
transfer. It is as vitally decisive as institution, though the latter determine the ultimate
productivity of the former. The same argument seems to hold-water as far as agricultural
technology is concerned. Dear student,generally, agricultural technology can be
understood as methods or techniques to enhance production frontier, or as a method of
using resources/endowments to produce goods and services. Various types of agricultural
technology render different uses.

Agricultural technology is considered to be central and necessary component of any

agricultural development strategy in developing countries. The main reason for limited
use of the potential of agricultural research is insufficient understanding of the nature of
research results and the process of effective utilization of agricultural research and
technology. Hence, agricultural Research and Development (R&D) is of paramount
importance.

Different agricultural research and extension approaches have been proposed and some of
them have been empirically practiced in the past, followed by changes and modification
as a result of experience and search for more effective and efficient approach. The
approaches practiced can be grouped into two broad groups: (a) conventional transfer of
technology (TOT) approach and (b) alternative approach – participatory approach.

Check List

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Direction:Dear students this is the section in which you confirm your understanding
of the lessons in this unit. Put a tick mark ( ) in the yes column for activities that you
have clear understanding and in the no column for activities that you doubt that you
have no good understanding so that you can go back to the lesson and learn again.
I Can: NoYes
 Explain the meaning of agricultural technology
 Identify Sources of agricultural technology
 Identify characteristics of agricultural research and development
 Explain approaches to agricultural research and extension

Self test exercises

Part I: Choose the best answer from among the given alternatives
1. Of the following, one isn’t/ aren’t scale neutral technologies?
A. Hybrid Seeds
B. Fertilizer
C. Irrigation
D. Pesticides
E. None
2. Which of the following is/are the principal role of ‘Agricultural Technology’?
A. It alters cropping pattern
B. It changes the product characteristics
C. It increases production efficiency
D. It reduces production risks
E. All

3. Based on their origin, technologies can be classified into__

A. Biological, Chemical, Mechanical and Managerial Technology
B. Hard (Embodied) and Soft Type (Non-embodied)

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 C. Indigenous and Modern Technology
D. Harmless and Harmful
E. None

4. Of the following, one is necessarily true about ‘Technological change”?

A. It is a movement from less efficient technology to a higher one
B. It is a movement from capital intensive technology to labour intensive
technology
C. It is a movement from a lower productive state of arts to a higher productive
state of arts.
D. It is a movement from extensive cultivation to an intensive one
E. All
5. Which of the following is necessarily true about “Improved Seeds’?
A. It is a biological technology
B. It is hard technology
C. It is embodied technology
D. It is non-embodied technology
E. None

Part II say True or False

1. Technologies could play a role of reducing production risks

2. The argument of Farmer Participatory Research (FPR) is based on the observation

that for technical, environmental and social reasons, agricultural science has had
little to offer to small resource-poor farmers.

3. The conventional TOT research and extension approach is criticized for being
top-down and linear in its orientation.

4. One of the underlying assumptions of FPR is that farmers are rational in using
resources;

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5. The Training and Visit (T&V) system would increase the interaction between
researchers, extension workers and farmers.

Part III. Short answer

1. Among the approaches to agricultural research and extension, which approach do

you think is more relevant and appropriate in light of Ethiopian existing situation?
Justify your answer.

UNIT SIX

HUMAN CAPITAL AND RURAL DEVELOPMENT

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µUnit Introduction
Dear student, welcome to the last unit of this course. We hope that you enjoyed all of the
previous units of the course. In this unit, you will learn about the need to improve human
capital for rural development in particular and for economic development of a given
country in general. This unit is broadly divided into four major sections.

Unit objectives

Up on successful completion of this unit, you will be able to:

 Explain the concept of human capital

 Explain the need to invest in human capital

 Identify the roles played by education in development

 Explain the type of education needed for rural development in countries like
Ethiopia.

ðPre-test Questions
 What is human capital all about?

 Why do governments need to prioritize investment in human capital like any other
forms of investment?

 How does education play a role in assisting development effort of developing

countries?

 What type of education is needed to bring about rural transformation in

developing countries?

Section One

The Concept of Human Capital

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µ Section Overview
Dear student, have you ever heard about human capital? It is deemed indispensable in the
process of agricultural production and productivity. Therefore, this section is concerned
with the conceptual elements of human capital.

Section Objectives
Upon the successful completion of this section, you will be able to:

 Define the concept of human capital

 Explain the origin of the concept of human capital

1.1 Human Capital

? Dear learner, what is human capital?

Human capital refers to the stock of competences, knowledge and personality attributes
embodied in the ability to perform labor so as to produce economic value. It is the
attributes gained by a worker through education and experience. Many early economic
theories refer to it simply as workforce, one of three factors of production, and consider it
to be a fungibleresource -- homogeneous and easily interchangeable. Other conceptions
of labor dispense with these assumptions.

? Dear learner, do you have any idea about the origin of the concept?

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Adam Smith, a Scottish philosopher and economistidentified four types of fixed
capital;these are 1) useful machines, instruments of the trade; 2) buildings as the means
of procuring revenue; 3) improvements of land; and 4) human capital.

In relation to human capital he defined it as ‘the acquired and useful abilities of all the
inhabitants or members of the society’. The acquisition of such talents, by the
maintenance of the acquirer during his education, study, or apprenticeship, always costs a
real expense, which is a capital fixed and realized, as it were, in his person. Those talents,
as they make a part of his fortune, so do them likewise that of the society to which he
belongs. The improved dexterity of a workman may be considered in the same light as a
machine or instrument of trade which facilitates and abridges labor, and which, though it
costs a certain expense, repays that expense with a profit.

The use of the term in the modern neoclassicaleconomic literature dates back to Jacob
Mincer's pioneering article "Investment in Human Capital and Personal Income
Distribution" in The Journal of Political Economy in 1958. The best-known application
of the idea of "human capital" in economics is that of Mincer and Gary Becker of the
"Chicago School" of economics. Becker's book entitled Human Capital, published in
1964, became a standard reference for many years. In this view, human capital is similar
to "physical means of production", e.g., factories and machines: one can invest in human
capital (via education, training, medical treatment) and one's outputs depend partly on the
rate of return on the human capital one owns. Thus, human capital is a means of
production, into which additional investment yields additional output. Human capital is
substitutable, but not transferable like land, labor, or fixed capital.

The introduction of the term is explained and justified by the unique characteristics of
competence (often used only knowledge). Unlike physical labor (and the other factors of
production), competence is:

 Expandable and self generating with use: As doctors get more experience, their
competence base will increase, as will their endowment of human capital. The
economics of scarcity is replaced by the economics of self-generation.

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 Transportable and shareable: competence, especially knowledge, can be moved
and shared. This transfer does not prevent its use by the original holder. However,
the transfer of knowledge may reduce its scarcity-value to its original possessor.

 Activity – 21

1. What is human capital?

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

2. Explain the origin of the concept of human capital?

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

Section Two
Investment in Human Capital

159
µ Section Overview
Dear distance learner, this is the second section of the unit. In this section you will learn
about the importance of investing in human capital for developing countries like
Ethiopia. It has two major parts. The first part will explain the need to invest in human
capital in developing countries. The second part will analyze the relationship between
educational system of developing countries and human resources

Section Objectives
Upon the successful completion of this section, you will be able to:

 Discuss the necessity of investing in human capital in developing countries

 Explain the educational system of developing countries in developing their

human resources

 Identify some major problems of the education system of developing countries

2.1 The Need to Invest in Human Capital

? Dear student, why countries like Ethiopia invest in human capital?

Although the objective of adding to the stock of physical capital has dominated
investment discussions, it has now become evident that a high priority must also be
assigned to investment in human capital. Most economists now agree that the human
resources of a nation, not its other capitals or material resources, that ultimately
determine the character and pace of its economic and social development.

The “residual” difference between the rate of increase in output and the rate of increase in
physical capital and labor encompasses many unidentified factors, but the prominent
element is the improvement of the quality of inputs. Although some of this progress may
be incorporated in physical capital, the improvements in intangible human qualities are
more significant.

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Capital stock should be interpreted more broadly to include the body of knowledge
possessed by the population and the capacity and training of the population to use it
effectively. Expenditures on education and training, improvement of health, and research
contribute to productivity by raising the equality of the population (human capital), and
these outlays yield a continuing return in the future. While investment in human beings
has been a major source of growth in advanced countries, the negligible amount of
human investment in underdeveloped countries has done little to extend the capacity of
the people to meet the challenge of accelerated development.

? Dear learner, what are the common characteristics of economic

backwardness?

The characteristics of economic backwardness is still manifest in several particular

forms: low labor efficiency, factor immobility, limited specialization in occupations and
in trade, a deficient supply of entrepreneurship, and customary values and traditional
social institutions that minimizes the incentives for economic change. The slow growth in
knowledge is especially a sever restraint to progress. The economic quality of the
population remains low when there is little knowledge of the natural resources that are
available, the necessary skills, the existing market conditions and opportunities, and the
institutions that might be created to favor economizing effort and economic rationality.
An improvement in the quality of human factor is, then, as essential as investment in
physical capital, an advance in knowledge and the diffusion of new ideas and objectives
are necessary to remove economic backwardness, and instill the human abilities and
motivations that are more favorable to economic achievement. Although investment in
material capital may indirectly achieve some lessening of the economic backwardness of
the human resources, the direct and more decisive means is through investment in human
capital.

It has been observed that in many newly developed or progressing countries the
absorptive capacity for physical capital has proved to be low because the extension of
human capabilities has failed to keep pace with the accumulation of physical capital.

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? Dear student, what activities do you think improve the human capital of a given
country?

Schultz identified the following important categories of activities that improve human
capabilities. These may include the following:

(i) Health facilities and services, broadly conceived to include all expenditures
that affect the life expectancy, strength and stamina, and the vigor and vitality
of a people:

(ii) On-the job training, including old style apprenticeship organized by firms;

(iii) Formally organized education at the elementary, secondary, and higher levels;

(iv) Study programs for adults that are not organized by firms, including extension
programs notably in agriculture;

(v) Study programs for adults that are not organized by firms, including extension
programs notably in agriculture:

(vi) Migration of individuals and families to adjust to changing job opportunities.

Unlike the earlier historical situation, it is now necessary to have a relatively high level of
skills and much more knowledge to take advantage of the more complex equipment and
techniques that may be obtained from advanced countries.

?Dear learner, do you think that there is a need to improve the human capital in
agricultural sector?

In order to achieve a system of modern agriculture, the quality of labor in agriculture has
to be improved as input in its right and to allow the use of better forms of non-human

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capital (equipment, seeds, and insecticides). In many countries that have experienced
substantial increases in agricultural production, the key factor has not been new land or
land that is superior for agriculture, nor has it been mainly the addition of reproducible
capital. More importantly, the agricultural transformation has been based predominantly
on new skills and useful knowledge required to develop a modern agriculture. For the
broader problems of educational requirements, the making of manpower surveys may
furnish a useful basis for determining the principal skill shortages and the types of
training activities to be emphasized.
[

2.2 Education and Human Resources

Human resources constitute the ultimate basis for wealth of nations. Capital and natural
resources are passive factors of production; human beings are the active agents who
accumulate capital, exploit natural resources, build social, economic and political
organization, and carry forward national development. Clearly, a country which is unable
to develop the skills and knowledge of its people and to utilize them effectively in the
national economy will be unable to develop anything else.

? Dear student, what is the institutional mechanism to develop the human

resource of a given country?

The principal institutional mechanism for developing human skills and knowledge is the
formal educational systems. The educational systems of the developing countries strongly
influence and are influenced by the whole nature, magnitude and character of their
development process. Formal education not only attempts to impart knowledge and skills
to individuals to enable them to function as economic change agents in their societies. It
also imparts values, ideas, attitudes, and aspirations that may or may not be in the
nation’s best developmental interests.

But educational system which is oriented towards preparation for work in the urban
modern sector may greatly distort student aspirations, and that too much investment in
formal schooling especially at the secondary and higher levels, could divert scarce

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resources from more socially productive activities (e.g. direct employment creation) if
done without through all round investigation and planning.

Developing nations were absorbing about 20-35% of the total government recurrent
expenditures for education. But compared to developed nations in which the per capita
public education expenditure was $230, the public expenditure per capita in developing
countries was $13 by the end of 1970s. African countries lag behind to the other
developing continents in terms of school age children enrolment in primary schools,
which was 40% in mid-1970s. One of the major educational problems of developing
countries is the very high percentage of students who drop out before completing a
particular cycle. One of the major bottlenecks of the developing world education is the
very high percentage of students who dropout before completing a particular educational
cycle. For example, it has been estimated that in Latin America 60% of students who
enter primary school dropout before they complete the cycle. However, the educational
budget in the Third World was steadily growing. For instance public education
expenditure doubled between 1960 and 1970. In 1980 the educational budget in the
developing world was absorbing anywhere between 15 to 30% of the total recurrent
expenditure.

? Dear learner, what are the problems of education in developing countries like
Ethiopia?

In addition to dropout, there are problems which are observed in primary and secondary
education in many developing countries including Ethiopia. These problems are
becoming major obstacles in the development of human capital and hence economic
development. Some of these problems may include:

 Lack of changes and efficiency: A repeatedly mentioned blame of educational

systems is that the teaching methods and learning techniques are rusty (impaired
in skill by neglect), cranky (by rote method, i.e memorization by repetition) and
antiquated (very old). The situation is related to inadequate competence and
motivations of most teachers who are usually underpaid and without

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 incentives/opportunity to learn any more than they took in at first. The training
emphasizes recitation, repetition and drill-learning rather than thinking and
problem solving.

 Poor management and distorted incentives: Rigidity persists along with a lack of
requisite information about the society’s needs, conditions and developmental
possibilities, and a lack of practically oriented research experimentation and
evaluation.

 Socially expected/perceived needs vastly exceed the available funds and other
resources.

 Political pressure intrudes at all levels of education, forcing educational system to

respond; but these pressures may have little to do with primary goals. The rural
primary education system is usually out of tune with the real needs of the society.
The private schools are not providing knowledge and skills and new ideas to
function efficiently in their environment (e.g. hygiene, nutrition, community
development etc.)

 Activity – 22

1. Discuss why the Ethiopian government is heavily investing in developing the human capital of
the country.
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____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
 Section Three
The Role of Education in Development

166
µ Section Overview
Dear distance student, this is section three of the unit on human capital and rural
development. In this section you will learn the role of education in development in
general and in rural development in particular. To do that, the section is divided into three
parts. The first part will identify the link between education and development. The other
part of the section will explain the role of education in rural development. The last part is
about explaining the contributions of non-formal education for rural development.

Section Objectives
Upon the successful completion of this section, you will be able to:
 Identify the links between education and development.
 Explain the role that education can play in rural development
 Identify the educational needs that can bring about rural development
 Explain the contribution of the non-formal education in rural development

3.1 The Link between Education and Development

? Dear student, how do you explain the link between education and development?

The linkage between education and development is a two-way process. On one hand
education reflects the socioeconomic structures of the societies in which they function
(democratic or not), educational system tend to perpetuate, reinforce, and reproduce that
economic and social structure. On the other hand, educational reform, whether introduced
from within or outside the system, has the great potential for inducing corresponding
social and economic reform in the nation as a whole.
Different studies have indicated that education contributes significantly to development
of developing countries. The World Bank’s education sector policy paper (1980)
concludes that studies have shown that economic returns on investment in education
seem, in most instances, to exceed returns on alternative kinds of investment, and that

167
developing countries obtain higher returns than the developed ones. In relation to the
human resource role in development, Meier (1989) suggests that the key to development
is human resources and that the abilities, values, and attitudes of people must be changed
in order to accelerate the process of development. Generally, an educated and skilled
labor force is a necessary condition of sustained economic growth. One must of course
need to consider also the structure and pattern of the economic growth and its distributed
implications – who benefits.

Studies have demonstrated that rather than being a general force for equality, the
educational systems of most developing nations act to increase rather than to decrease
these income inequalities. The reason for this mal-distribution is the positive correlation
between a person’s level of education and his level of lifetime earnings.

Since levels of earned income are so clearly dependent on years of completed schooling,
it follows that large income inequalities will be reinforced and the magnitude of poverty
perpetuated if students from middle and upper-income brackets are represented
disproportionately in secondary and university enrollments. Equality of educational
opportunities can have little meaning if financialassets and income earning opportunities
are very unequally distributed. Todaro (1981) argues thus that the problems of poverty
and inequality depend ultimately on the direct measures aimed at eliminating them and
only partially on indirect measures like universal education.

Education is also an important factor influencing both rural-urban migration and levels of
fertility. Existing empirical evidences reveal that education influences labor mobility
directly (i.e. through its impact on higher income expectations). Various studies have
documented the positive relationship between the educational achievement of an
individual and his propensity to migrate from rural to urban areas. With regard to
education and fertility relationship, the general observation is the existence of inverse
relationship between the education of women and their size of family, particularly at
lower level of education.

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3.2 Education and Rural Development

? Dear learner, how does education play a role in rural development?

Since agricultural development represents the many subjects as health and nutrition,
homemaking and child care, home repairs and improvements, family planning, and so on,
it must be seen in broader perspective. Rural development must be viewed in the context
of far-reaching transformation of economic and social structures, institutions,
relationships, and process in rural areas. Among the broader goals of rural development
are the creation of more productive employment opportunities both on and off of the
farm; more equitable access to arable land; more equitable distribution of rural income;
more widely distributed improvements in health, nutrition and housing, and finally; a
broadened access to the kind of formal (in-school) and non-formal (out-of-school
education for adults as well as children) that will have direct relevance to the needs and
aspiration of rural dwellers. But the formal school system in less developed countries is
with minor modification a direct transplant of the system in developed countries. For
example, major groups with important rural training needs such as out-of school children
and young, women, and small subsistence farmers are largely neglected by organized
educational systems, both formal and non-formal.

To sum up, education has a very important role in rural development, which often has
broad goals including:
 Creation of employment opportunities both on on-farm and off farm;
 Equitable distribution of rural income.
 Broadly distributed improvements of health, nutrition and housing;
 A broadened access to formal education and non-formal education (outside
school system) education for adults and children that will have direct
relevance to the needs of and aspirations of rural dwellers.

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? Dearstudents, what type of educational needs are demanded for rural
development?

In order for the education system to contribute to rural development, some needs must be
fulfilled. The educational economist, Coombs groups the educational needs for both
young people and adults, male and female, under four categories. These are:
1. General or basic education: literacy, and elementary understanding of science and
one’s environment, etc. what most primary and secondary schools seek to
achieve.
2. Family improvement education: designed primarily to impart knowledge, skills,
and attitudes, useful in improving the quality of family life, on such subjects as
health and nutrition, homemaking and childcare, home repairs.
3. Community improvement education: designed to strengthen local and national
institutions and processes through instruction in such matters as local and national
government, cooperatives, community projects, and the like.
4. Occupational improvement education: designed to develop particular knowledge
and skills associated with various economic activities that are useful in making a
living.

Educational strategies and policies need to work on two levels objectives:

(a) Modifying the economic and social signals and incentives outside of the
educational system that largely determine the magnitude, structure, and
orientation of the aggregate private demand for education and consequently the
political responses in the from the public supply of school places. Thus policies
that tend to remedy major economic imbalances and incentive distortions (e.g. in
income and wage differentials) and alleviate social and political constraints on
upward mobility can have multiple beneficial effect of increasing job
opportunities, modifying the accelerated rate of rural-urban migration, and
facilitating development related modifications of educational system.

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 (b) Modifying the internal effectiveness and equity of educational systems by
appropriate changes in course content especially for rural areas, structures of
public versus private financing methods of selection and promotion, and
procedures for occupational certification by educational level.

Thus, only by policies designed simultaneously to achieve these two objectives can the
real positive links between education and development be successfully forged.

Effective and well designed educational programs catering for each of the three diverse
occupational groups (for farmers and farm workers, persons engaged in non-farm rural
enterprises and rural general service personnel) are needed if education is to make an
important contribution to rural development.

3.3 Non-formal Education for Rural Development

? Dear learner, what is a non-formal education?

Education is not a time-bound or space-bound process. Education is equated broadly with

learning. The learning-centered education obliges us to start with the needs of the clients,
with aim of fulfilling these needs by employing best options. Education is a continuous
process starting from the earliest infancy through adulthood, necessarily entailing a
variety of methods and sources of learning.

Non-formal education is any organized educational activity outside the established formal
school system, whether operated separately or as an important feature of some broader
activity, intended to serve identifiable learning clienteles and learning objectives. Some
examples include: pre-school day care centers and nurseries; programs to provide a
second chance for those who are missing schooling or dropped out early; adolescent and
adult literacy classes; school-based extracurricular activities such as boy and girl scouts;
young farmers club; sports and recreational groups; occupational training for adolescents

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in agriculture, construction, etc. carried on outside the formal school structure. These
three types of learning reinforce each other.

In addition to the need to have a non-formal education for rural development, there is a
need to have a clear and realistic conception of the minimum essential learning needs.
Every society should assure primarily securing of at least the minimum learning
requirement to all. The important elements of these minimum essential learning needs
generally include:
 Positive attitudes – towards cooperation with and help to one’s family and
fellow men; towards work and community and national development,
continuing education and learning, and ethical values:
 Functional literacy and numeracy (skill with numbers and mathematics): (i) to
read with comprehension a news paper and other ‘how-to-do-it’ magazines;
(ii) to write a legible letter; (iii) to handle common computation-such as a
measurement of land and buildings, etc.
 A scientific outlook and elementary understanding of the process of nature in
particular area (e.g. health and sanitation);
 Functional knowledge and skills for earning a living. Knowledge and locally
useful common skills for agriculture and non-farm use;
 Functional knowledge and skills for civic participation. National and local
history and ideology, understanding of one’s society and government structure
and functions, rights and obligations of individual citizens.

For education to be instrumental to rural development, it should be fitted into a larger

framework and strategy appropriate to multifaceted rural development. Rural
development or rural transformation is progressive changes in methods of production,
economic institutions, social and political infrastructure and human relationships and
opportunities.

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  Activity – 23

1. Identify the links between education and development in the context of Ethiopia.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

2. Explain the role that education can play in Ethiopian rural development.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

3. Identify the educational needs that can bring about rural development in the context of
Ethiopia.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

4. Explain the contribution of the non-formal education in Ethiopian rural development.

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

Unit Summary

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Dear learner, in this unit you have dealt with human capital. Although the objective of
adding to the stock of physical capital has dominated investment discussions, it has now
become evident that a high priority must also be assigned to investment in human capital.
In so doing, human capital is a prerequisite for rural development in particular, and
national economic development in general.

The linkage between education and development is a two-way process. On one hand
education reflects the socioeconomic structures of the societies in which they function
(democratic or not), on the other hand, educational reform has the great potential for
inducing corresponding social and economic reform in the nation as a whole.

Education has a very important role in rural development, which often has broad goals
including, creation of employment opportunities both on on-farm and off farm, equitable
distribution of rural income, and broadly distributed improvements of health, nutrition
and housing.

Check List

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Direction:Dear students this is the section in which you confirm your understanding
of the lessons in this unit. Put a tick mark ( ) in the yes column for activities that you
have clear understanding and in the no column for activities that you doubt that you
have no good understanding so that you can go back to the lesson and learn again.
I Can: NoYes
 Explain the meaning of human capital
 Explain the need to invest in human capital
 Identify the roles played by education in development
 Explain the type of education needed for rural development
In countries like Ethiopia

Self test exercises

Part I: Choose the best answer from among the given alternatives

1. Which of the following is necessarily true?

A. Human capital development is a sufficient condition for accelerated economic
growth
B. Physical capital is a necessary condition for accelerated economic growth
C. Capital and natural resources constitute the ultimate basis for wealth of
nations
D. Human capital has dominated investment discussions to date
E. All

2. Of the following one is identified by Schultz as important categories of activities

that improve human capabilities.
A. On-the job training
B. Health facilities and services

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 C. Formally organized education
D. Study programs for adults
E. All
3. Who defined human capital as ‘the acquired and useful abilities of all the
inhabitants or members of the society’?
A. Schultz D. Karl Marx
B. W. Rostow E. Amartya Sen
C. Adam Smith
4. Which of the following is the principal component of human capital?
A. Knowledge D. Personality
B. Skill E. All
C. Health

5. Which of the following is recommended by Coombs, for education to contribute

to development,
A. General education D. Occupational improvement education
B. Family improvement education E. All
C. Community improvement education

Part II Say True or False

1. The linkage between education and development is a one way process

2. Human capital constitutes the ultimate basis for wealth of nations.

3. For education to be instrumental to rural development, it should be fitted into a

larger framework and strategy appropriate to multifaceted rural development.

4. Education is the sole element of human capital

5. The principal institutional mechanism for developing human skills and knowledge
is the formal educational system.

Part III Give Short Answer

176
 1. Explain the apparent relationship between human capital and rural development.
Justify your answer.

References

 Adelman, I (1961), Theories of Economic Growth and Development. California:

Stanford University Press.

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 Aredo, Dejene (1999), Property Rights in Land: Theory and Evidence from Rural
Ethiopia. Ethiopian Journal of Development Studies. Vol. 21, No. 2. Addis Ababa,
Ethiopia.
 Colman, D and Nixon, F. (1978), Economics of Change in Less Developed
Countries. Oxford: P. Allen.
 Colman, D and Young, T. (1989), Principles of Agricultural Economics: Markets and
Prices in Less Developed Countries. Cambridge: Cambridge University Press.
 Dreze, J and Sen, A (1989), Hunger and Public Concern. Clarendon: Oxford
University Press.
 Eggersson, T (1990), Economic Behavior and Institutions. Cambridge: Cambridge
University Press.
 Eicher, C.K and Staaz, J.M (1992), Agricultural Development in the Third World. 2 nd
Edition. Baltimore: The Johns Hopkins University.
 Ellis, F (1993), Peasant Economics: Farm Household and Agrarian Development. 2 nd
Edition. Cambridge: Cambridge University Press.
 Ellis, F (1992), Agricultural Policies in Developing Countries. Cambridge:
Cambridge University Press.
 Harris, J. (ed.) (1992), Rural Development: Theories of Peasant Economy and
Agrarian Change. London: Hutchinson.
 Johnston, B.F. and W.C. Clark (1982), Redesigning Rural Development: A Strategic
Perspective. Baltimore: The Johns Hopkins University.
 Lele, U (1975), The Design of Rural Development: Lessons from Africa. Baltimore:
The Johns Hopkins University.
 Micheal, Todaro (2003), Economic Development. (8 th Edition). New Delhi: Pearson
Education.
 Schultz, W.T. (1962), Investment in Human Capital in Poor Countries, in Foreign
Trade and Human Capital. P.D Book.
 Robert C. (1983) Rural Development: Putting the last first. New York: Longman
Scientific and Technical
 Devereux S and Maxwell S (2001) Food Security in Sub-Saharan Africa. London:
Institute of Development Studies

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JIMMA UNIVERSITY

College of Law and Governance

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 Department of Governance and Development Studies

Continuing and Distance Education (CDE) division

Assignment on the course: Rural Development

Total point: 30%

1. Discuss the concepts of rural development with its aims and components. (3 point).

2. Discuss modernization theory with characteristics and criticisms (4 point).

3. Briefly discuss four types of rural development strategies based on the agrarian
relation. (5 point).

4. Discuss the role of rural finance and credit to rural development. (4 point).

5. Discuss agricultural Research and Development (R&D) and technology adoptionwith

their essence to rural development. (5 point)

6. Discuss education and rural development. How non formal education contributes to
rural development? (4 point)

7. Discuss the successes and failures of rural development policy of post 1991 Ethiopia.
(5 point).

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