Lecture notes: Economics of Development Introduction

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Growth diagnostic

It is not easy to define an appropriate strategy to attain development in, for instance, the Gambia. We have focused on possibilities for exploiting complementarities and on difficulties to avoid coordination failures. Even if these issues have been an important concern for many development economists, we shall not make the mistake and belief that we have found the final solution.

To many interested in this field, it is evident that each country is unique and probably need its specific strategy. Among those sharing this knowledge it is popular to apply a model called “the growth diagnostic framework”. Like a medical doctor apply an hierarchical procedure for testing different diagnoses and exclude illnesses, the economist apply a diagnostic tree to identify different possible limitations to growth and afterwards suggest treatments for the expected disease.

The model sets out from a postulate with a broad acceptance (many people would agree): A high level of private investments and entrepreneurship are good and should be promoted by a development strategy. One advantage of the diagnostic tree is that it shows that it shows how the various analytic tools discussed in different parts of this course is related to different limitations to development. For instance, “coordination failure” makes “low private appropriability” severe limitation to growth, while “low domestic savings” (discussed in a previous lecture) makes “high costs of finance” a limitation on growth.

/eventually discuss figure 4.3 more in detail/

Be careful, do not think that the practice of a medical doctor can be directly transferred into the field of development economics. When targeting a specific limitation to growth, remember that the diagnosis is based on a probability, and assume that the probability of your diagnosis is significantly lower than in the case of a medical doctor. The most important contribution of “growth diagnostic”, probably, is that it tells us that there is no medicine that can be used for all countries.

Sustainable agricultural transformation

Since poverty should be a concern of development economics (cf. pp 219 – 221), and the core problems of poverty originate in the economic stagnation in rural areas, the rural economy must play an indispensable role in any strategy of economic progress. This perspective on development differs from Lewis’ two-sector model, where agriculture plays a passive role to provide food and manpower to the “leading” industrial sector.

The agrarian system in Africa

One lesson to be learned from studies of development is that developing countries are different and therefore have to be dealt with differently. In Latin America and in parts of Asia the trend is toward concentration of large land areas in the hands of a small class of landowners, while in Africa a relative availability of unused land has led to other types of farming. At the same time, due to subdivision of land, there is a trend both in Asia and Africa that the size of individual farms are becoming smaller. In order to better understand the importance of these differences, we need a tool by means of which we can classify countries with regard the agricultural activity.

T/S introduce the notion of agricultural system and tries to identify an African agrarian system as well as one in Latin America and another one in Asia. We have already mentioned empirical evidence of ownership (ownership to land) and patterns of land distribution. These two variables are included in the characterization of an agrarian system. Even if farm-sizes tend to decrease over time in all three systems, table 9.3 in T/S, which shows the variation in farm sizes for individual countries, does not show a clear differences between the systems with regard to average farm size. For those countries included, the average size is larger in Latin America than in the other two systems. But Bangladesh and India in Asia have about the same small size as many countries in Africa. On the other hand, an African country such as Botswana has an average larger than Thailand and Pakistan in Asia.

The size of farms are an indicator of the type of management; if the farms are mainly directed towards subsistence farming or cash crops; if they are managed as a firm employing workers or as a family farm. In Africa, the family farm owned and operated by a single family is common, while in Latin America Latifundio owned by a small number of landlords employing more than 12 (sometimes 1.000) workers is the most common way of organizing agrarian activities.

Social and cultural institutions are crucial characteristics of an agrarian system. In the African system the allocation of control of resources depends on kinship both by descent and by marriage implying that husband and wife usually have their own separate economy and the oldest son takes over the responsibility for the family after the father. Furthermore, in the Gambia, we have the traditions associated with the village Alkali, who allocates land to inhabitants of the village, which is a discrimination of those coming from other villages, who are unable to get land in the village. I have heard that this institution is changing when the price of land increases????

More specifically, the African agrarian system has three characteristics:

1) Subsistence farming is important (type of management): The majority of farming families in Africa plan their output primarily for their own subsistence. Only small areas can be planted and weeded as traditional tools (hoe,the axe and panga) are used. Donkey, small horses and cows are used to make work more easy, but most work is performed by labor.

Another limitation is the access to fertilizer implying that farmers have to rely on shifting cultivation (slash and burn with fallow). However, with a growing population, the fallow period have to be made shorter or new farmland has to be created by clearing the forests.

I do not think subsistence farming is sustainable in its present form. A continuation will increase the harm of deforestation and desertification. One alleviation mentioned in the literature is genetic engineering creation new crop species. In my next lecture, I will point at soil management as another possibility.

A third factor that put limitation on the future growth of subsistence farming is the scarcity of labor during the rain, growing, planting and weeding season.

2) The existence of some land in excess of the immediate requirements. Institutions for private ownership to land have been less important than in parts of Asia and Latin America, with powerful classes of landlords. Instead of relying on private property, in Africa there are traditions for common property and local customs for allocating land, for instance, the Gambian alkali (ownership)

3) The right of each family in a village to have access to land and water (social and cultural institution). This rule of the traditional system is an insurance the villagers have. One drawback, can be that the rule impede innovations. Newcomers in a village bring new ideas about how farming can be done and as this institution is a barrier for emigrants that have land, novelties are never brought to the village. There is evidence that villages provide land to newcomers in the neighbourhood to the village, and afterwards connections between the two villages have been established, which have brought improvement into the original village.

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