STRATEGIES FOR BALANCED GROWTH
IN DEVELOPING COUNTRIES
AGRICULTURAL ECONOMIC REPORT NO. 375
ECONOMIC RESEARCH SERVICE / U.S. DEPARTMENT OF AGRICULTURE
"A successful program to increase food supplies in developing
countries needs to be accompanied by companion strategies to main-
tain balanced growth throughout the economy. The companion
strategies serve to increase the availability of local resources, intro-
duce appropriate technologies in the nonfarm sectors, expand mar-
kets for local products, ensure equitable regional distribution of
economic gains, and build appropriate institutions."
Clark Edwards is a senior economist with the Economic Develop-
ment Division, Economic Research Service, U.S. Department of
Agriculture. The research underlying this bulletin was done while
the author was detailed to the Agency for International Development
during 1976. He has recently authored two publications relating to
balanced economic growth in the U.S. economy: Strategies for
Balanced Rural-Urban Growth (AIB-392) and, with Rudolph DePass
as coauthor, a more technical treatment of the subject titled Alter-
native Futures for Nonmetropolitan Population, Income, Employ-
ment, and Capital (AER-311). Single copies of both are available
from ERS Publications, Room 0054-S, U.S. Department of Agricul-
ture, Washington, D.C. 20250.
Washington, D.C. 20250
STRATEGIES FOR BALANCED GROWTH IN DEVELOPING COUNTRIES
When an agricultural innovation is adopted in a developing country, it usually
increases food supplies and improves diets. That, after all, is the purpose of in-
troducing the innovation. More and better food helps feed the hungry, supports
a growing population, and provides an agricultural surplus which can be invested
in industrial development.
But programs introduced to spur progress do not always produce unmixed
blessings. Planners frequently overlook the possibility of unintended side effects,
some favorable and some not. For example, those who master a new agricultural
technology gain. But those who do not understand or adopt the new ways do
not gain and, in fact, may become worse off. The resulting increase in gross na-
tional product may be accompanied by a widening economic gap between the
rich and the poor. Both favorable and unfavorable side effects of agricultural de-
velopment programs need to be identified and companion programs need to be
devised to achieve balanced growth.
Monitoring balanced growth requires measures of well-being in several sectors
of the economy. For agriculture, one can measure whether gains in productivity
increase aggregate food supplies while contributing to increased net incomes and
capital accumulation. However, agriculture is not homogeneous. As some farm-
ers adopt new ways of doing things and increase profits, others continue in tradi-
tional patterns. Traditional farmers may face rising costs of land, capital, and
purchased farm inputs, as well as falling product prices. Reduced levels of living
on traditional farms may be accompanied by limited nearby nonfarm economic
opportunities. As a result, it may be observed that ". .. the purchasing power of
the common man is falling" [17, page 1]. For sectors outside of agriculture, one
can measure whether linkages to agriculture are inducing increased employment
and income. The nonfarm sector is not homogeneous either. New jobs and in-
creased income may be induced in the central cities while hardships and limited
nonfarm economic opportunities persist or worsen in villages.
Balanced growth strategies to overcome such side effects require multifaceted
programs which increase technology in rural and urban industries as well as in
agriculture. Programs, such as infusion of capital, will be needed to enhance
resources. New markets for farm and nonfarm products, both domestic and
foreign, will be needed. Programs will be needed to develop transportation, im-
prove rural as well as urban life, and maintain regional balance. And institutions
will be needed to promote markets, resolve conflicts, educate, and assimilate new
ways of doing things into a traditional society.
This paper examines impacts of programs to develop agriculture. Side effects
are noted both within agriculture and between agriculture and the nonfarm
sectors. Strategies are discussed which can maintain balanced growth among the
farm and nonfarm economic sectors as agriculture advances. Strategies focused
on agriculture, both advancing and traditional, are addressed first. Then strate-
gies focused on the nonfarm sectors, both urban and rural, are examined.
The Agricultural Sector
A traditional, subsistence agriculture has relatively simple and minor linkages
with the nonfarm sector. Food and fiber grow close to final markets. Much of
the produce is consumed on the farni where it is produced, or in nearby villages;
relatively little is transported to major cities for processing and domestic distribu-
tion. Markets are of relatively minor local importance. If a large share of agri-
cultural output is exported, relatively little value is added through domestic
processing. Techniques of agricultural production in such nations tend to be
simple and require little in the way of advanced machinery, fertilizer, and other
purchased farm inputs. Impacts of changes in the production, processing, dis-
tribution, or consumption patterns within traditional agricultural systems are
rarely felt beyond the local village.
As improved agricultural technology is adopted and the traditional system be-
gins to be replaced by an advancing one, the agricultural sector becomes more
complex. The increase in supply of farm products above local village needs in-
duces the need for various nonfarm economic activities related to transportation,
processing, and marketing. These are called forward linkages. In addition, de-
mands for more and different kinds of farm inputs induce various nonfarm
economic activities related to providing seed, fertilizer, fuel, equipment, credit,
and others. These are called backward linkages. Formation of these linkages
helps to determine the success of the agricultural advance. Backward linkages
are caused directly by demand for inputs. Forward linkages may anticipate de-
mands for final products or hope to induce them. This accounts for Hirschman's
contention that: "backward linkage effects are much neater than forward link-
age effects. Forward linkage could never occur in pure form. It must always be
accompanied by backward linkage" [14, p. 116].
If the linkages do not form, the advance will fail because an advanced agricul-
ture can survive only with nonfarm specialization in industries that supply inputs
and that transport, process, and distribute outputs. If linkages form inappro-
priately, potential gains from the advance will be maldistributed. When linkages
form, they tend to be accompanied by new marketing institutions; the advancing
agriculture tends to purchase inputs and sell outputs in different markets than
those used by traditional agriculture.
Magnitude of Linkages
In a developed economy, linkages of the farm to nonfarm sectors are sizeable.
Forward and backward agricultural linkages together add more to national in-
come and output than the initial values of the increase in farm output. Some im-
pacts work through the economy quickly. Some permeate more slowly. For-
ward linkages are larger than backward ones. (For a classification of all industries
with respect to forward and backward linkage see .) In the United States, for
example, an increase of $1,000 in farm output can be expected to induce more
than $3,000 in forward linkages . Primary effects are on the following indus-
tries: food and kindred products, textiles and apparel, wood products and con-
struction, chemicals and drugs, transportation and communication, and whole-
sale and retail trade.
Demands by farmers for purchased farm inputs associated with a $1,000
increase in U.S. farm output can generate nearly $2,000 in added backward link-
ages. Primary impacts are on the following industries: energy sources, such as
coal, gas, oil, and electricity; natural resource industries, such as mining and
water; machinery and equipment; miscellaneous manufacturing, such as plastic,
wire, and glass; transportation and communication; wholesale and retail trade;
financial services; and processed farm products, such as food, feed, fabrics, and
Nonfarm linkages with an advancing agriculture create jobs as well as income.
If U.S. farm output were expanded using present technology to create 1,000 new
jobs on the farm, forward linkages would induce more than 1,500 additional jobs
while derived demand for backward linkages would induce nearly 1,000 addition-
Undeveloped economies have limited forward and backward linkages of agri-
culture to the nonfarm sector, while developed economies have linkages which
account for more income and employment than is found in the originating agri-
cultural sector. As commercial agriculture expands, one of the important side
effects will be associated with inducements to develop these linkages.
Because up to 80 or 90 percent of the people in a developing country may be
engaged in agriculture, economic development is often considered agricultural de-
velopment. Or, at least, rural development is assumed synonymous with agricul-
tural development. Both assumptions are misleading. There is a tendency for
analysts to force such nations into a mold wherein all nonfarm activities occur
in the urban centers and rural economic activity consists solely of an advanced
agriculture. This view has led to a chicken and egg type of argument as to which
of the two sectors is the leading edge of development and which the follower.
Development programs are then focused on the supposed leading edge and multi-
Our discussion places the production of economic goods and services in a
developing nation in four sectors: traditional agriculture, advancing agriculture,
rural-based industries, and urban-based industries. Illustrative (not exhaustively
complete) exchanges-forward and backward linkages-among sectors are indi-
cated here by the arrows. For example, the rural-based industries may purchase
hides (backward linkage) from traditional agriculture and sell shoes (forward
linkage) to the urban sector. And they may purchase tools (backward linkage)
from the urban sector and manufacture implements for use on traditional
farms (forward linkage). The economic importance, in terms of volumes of
flows, varies; some linkages which exist in theory may be unimportant in prac-
tice. But others will prove to be essential for economic development, and if
they do not arise in response to economic inducements, they will have to be
created through public policy in order to reach economic development goals.
Other linkages not illustrated which link the four sectors are the resource mar-
kets (land, labor, capital) and the markets for final products.
plier effects are depended upon through which program benefits "trickle down"
to the follower.
Economic development is a multifaceted process. Planners of balanced econ-
omic growth need a more complex analytic framework than the dual leader-
follower model. The number of sectors used herein to analyze the impacts of
agricultural development in the economy of a developing nation is not two, as in
dual models, but four: a traditional agriculture; an advancing agriculture; a rural,
nonfarm economy; and an urban economy .
Programs introducing advanced agricultural technology reach some, but not
all, farmers. Some farmers continue to use water buffalo while others learn to
operate and maintain tractors. Technological advance can act as a wedge splitting
agriculture into two sectors-an advancing sector standing alongside the tradition-
al one. The advancing sector will be relatively small in a developing country. As
the nation grows, the advancing agricultural center will come to dominate agri-
culture. Most farm products will come from the advancing sector, even though
a large number of families continue in the traditional patterns.
A bag of rice from a modem farm looks just like a bag of rice from a tradi-
tional farm. Because of the perfect substitutability in the market place of the \
products of the two kinds of farm, the two agricultural sectors are often viewed
as a single sector. However, marketing institutions relied upon by the two sectors
may be different, and production methods are quite different. Resource alloca-
tions are different. The abilities to pay for land, labor, and capital differ. These
differences influence income distribution and growth. Yet the two sectors are
closely related through the substitutability of their products. For that reason, a
small economic advantage in one agricultural sector can have strong impacts on
resource allocation, profits, wealth, and the level of well-being in the other.
The nonfarm sector of a developing economy is often viewed as an advancing
urban sector. This sector includes the industries linked to the advancing agricul-
ture by farm input markets and farm output markets-forward and backward
linkages. This urban oriented viewpoint tends to overlook a significant propor-
tion of any economy, developed or not, which is neither urban nor agricultural.
This is the rural, nonfarm sector, which is important in providing nonfarm goods,
services, and jobs to rural people, and in processing and transporting farm and
rural nonfarm products to urban markets. In a developed economy, the rural
(nonmetropolitan, nonfarm) sector may account for one-fourth of the nation's
Allocation of land, labor, and capital among the four sectors, and forward and
backward linkages among sectors through intermediate products, are considered
in the subsequent analysis of economic development. The analysis considers five
kinds of changes that can influence progress in a developing nation: (1) new
technology, (2) expanded markets, (3) increased resources, (4) new institutions,
and (5) changed spatial relationships.
"As the nation grows, the advancing agricultural sector will come to dominate
agriculture. Most farm products will come from the advancing sector, even
though a large number of families continue in the traditional patterns."
1. New Technology
A major thrust of post-Marshall Plan, U.S. foreign aid programs has been to
introduce advances in agricultural technology. If changes are incorporated by the
advancing agricultural sector, interactions lead to changes throughout the econ-
omy. Some changes may be judged desirable; some may not.
When a new technology is introduced to the advancing agricultural sector,
food and fiber output from that sector will likely increase. That is the purpose
of the program. Impacts are likely to be felt throughout the economy, either
directly through forward and backward linkages or indirectly through market
forces reflecting changes in product and resource prices. Backward linkages will
reflect increased demand by farmers for products from the rural nonfarm and
urban sectors as well as for land, labor, and capital. The advancing agricultural
sector may bid resources, especially land and capital, away from the traditional
sector and reduce output there.
But output for agriculture as a whole is likely to increase and thereby exert
downward pressure on prices received by farmers. These lower prices induce,
through forward linkages, increased use of farm products in the rural nonfarm
and urban sectors. This induces the nonfarm sectors to employ more labor
and capital and to increase output. Larger supplies exert downward pressure on
"Technological advance can act as a wedge splitting agriculture into two sec-
tors-an advancing sector standing alongside the traditional one." (State of
Madhya Bharat, India)
prices received for products of the nonfarm sectors which sets up further reper-
cussions, including feedback to the advancing agricultural sector where the change
Repercussions affecting resource prices will induce a reallocation of land,
labor, and capital among the four economic sectors. Increased demands for capi-
tal by the capital-intensive advancing agriculture, rural nonfarm industries, and
the urban industries are likely to more than offset decreased demands for capital
from the relatively extensive traditional agriculture. This leads to increased use
of capital in the nation as a whole and to upward pressure on interest rates. In-
creased use of agricultural land by the advancing agricultural sector may more
than offset decreased use by traditional agriculture, leading to upward pressure
Advancing agriculture may use more or less labor, depending upon the nature
of the technological advance. An advancing agriculture will create some jobs,
such as increased harvesting labor, but may destroy others, such as caring for
the family water buffalo. An illustration of the way advances in agriculture des-
troy, rather than create, jobs may be noted in the following passage in which
Tull explains his motivation for inventing a seed drill, when England was a de-
veloping nation .
The first occasion of making my drill for fine seeds was this:
It was very difficult to find a man that could sow clover toler-
ably; they had a habit (from which they could not be driven)
to throw it once with the hand to two large strides and go
twice on each cast; thus with nine or ten pounds of seed to an
acre, two-thirds of the ground was unplanted, and on the rest
'twas so thick that it did not prosper. To remedy this, I made
a hopper, to be drawn by a boy that planted an acre sufficient-
ly with six pound of seed; but when I added to this hopper an
exceeding light plow, that made six channels eight inches
asunder, into which two pounds to an acre being drilled, the
ground was as well planted .... But the.sort of seed which is
most saved by the drill is St. Foin ....
After I had learned ... that scarce any [seed] ... would suc-
ceed, unless covered at a certain exact depth ... I employed
people to make channels, and sow a very small proportion of
seed therein, and cover it exactly .... [But finding it difficult
to get workers to obey instructions exactly], I was forced to
dismiss my laborers, resolving to quit my scheme, unless I
could contrive an engine to plant St. Foin more faithfully than
such hands would do ... I composed my machine. 'Twas
named a drill; because when farmers used to sow their beans
and peas into channels or furrows by hand, they called that
A more recent illustration that new technology can destroy jobs as well as
create them is taken from modern day Indonesia:
... contrary to what was presumed by many development
economists, our survey indicates that the new high yielding
rice varieties employ less labor per hectare and per unit of value
than do traditional rice varieties .... Apparently there is a sub-
stantial reduction in plant care-hoeing, weeding, and water
control-prior to harvest ... it would appear that increased
adoption of the new seed varieties will not provide a panacea for
regional unemployment [21, p. 79].
More labor will be required by the nonfarm sector because of linkages to the
advancing agriculture. Expanding demands for labor by rural nonfarm industries
and urban industries, and possibly by advancing agriculture, may fail to offset the
release of labor from the relatively labor-intensive, traditional agriculture. This
leads to decreased utilization of labor in the nation as a whole and to downward
pressure on wages. A cost-price squeeze associated with lower prices received for
agricultural products, and with rising prices paid for land and capital can displace
persons in the traditional sector faster than they can be absorbed elsewhere in the
economy. Additional labor market problems arise when unskilled labor released
from the traditional sector cannot meet demands for skilled labor in growing
Adoption of new technology by the advancing sector of agriculture has favor-
able impacts on those who make the adoption. Forward linkages, if they form
adequately, lead to expansion in nonfarm rural and urban industries, and in-
creased supplies of both farm and nonfarm products become available at lower
prices. The land and capital markets become tighter, and rents and interest rates
may rise, to the benefit of property owners.
Adverse effects stem mostly from impacts on the traditional agricultural sec-
tor. Prices received for farm products fall, while prices paid for land and capital
rise. Some resources are reallocated to the advancing sector, but for persons re-
maining in traditional agriculture, a cost-price squeeze is likely, and net incomes
decline. The squeeze could increase poverty and heighten pressure for migration
from rural to urban areas. More labor may be released from the traditional agri-
cultural sector than is absorbed by expansion in advancing agriculture or in the
rural and urban industries. Unemployment increases and wages decrease.
Unemployment and underemployment are recognized as possible conse-
quences of rapid technological advance [30, ch. 31]. The concept of introducing
intermediate or appropriate technology is, in part, an effort to overcome the de-
leterious impacts of high technology on unemployment and income distribution
. "Development consists primarily of employing existing resources in a
different way, in doing new things with them" [32, p. 68]. Even so, technology
cannot be expected to solve all the economic problems experienced by countries
with rapid population growth, limited capital, and extensive poverty.
Some technical advances may idle resources on a part-time or seasonal basis.
For example, labor used for seeding and cultivating may be affected to a larger
extent than that used for harvesting. To meet seasonal labor problems, it has
been proposed that "The development of village industries should be as much a
matter of state action as the increase of agricultural production" [12, p. 315].
Peasant land holders in Japan developed artisan activities to provide supplemen-
tary employment for seasonal agricultural labor .
There exists seasonal unemployment in the rural sector. In
order to provide employment to farm labor during the slack
season, the establishment of agro-industries, public works pro-
grams in the rural sector and the creation of infrastructure in
the rural areas is suggested. This not only would provide em-
ployment in the slack season but would also stimulate the
demand for agricultural output and reduce marketing, trans-
portation and storage costs of farm commodities. However,
one can also think of mechanizing some of the farm operations
during peak labor demand months and hence reduce the de-
mand for labor during those months. By doing so, we can
pull some labor from the rural sector and provide employment
by creating more employment opportunities in the urban-
industrial sector [22, p. 62].
The above analysis shows that while many of the direct and individual eco-
nomic impacts of adoption of new technology are favorable, there are some
unwanted consequences as well. Of particular concern is the tendency to
create unemployment and underemployment for those who are displaced
from agriculture and also for those who remain in agriculture but do not adopt
the new methods. Economic development strategies which introduce advanced
methods to agriculture must consider (1) the adoption of appropriate rather
than high levels of technology, designed to minimize adverse economic impacts
on traditional farmers and (2) the creation of nonfarm jobs to absorb persons
displaced from agriculture by the advanced production methods. Part of the
strategy may be to introduce appropriate advances in technology to the tradi-
tional agricultural sector.
If a new technology is introduced to the traditional sector instead of the ad-
vancing one, the resulting impacts may benefit the traditional sector at the ex-
pense of the advancing one. For example, consider adoption of a public measure
to reduce disease in work animals. Assume this does not affect resource produc-
tivity in the advanced agriculture sector, where tractors are used instead of work
animals. Since the products of the traditional and advancing agricultural sectors
are perfect substitutes, a small advantage in one sector may lead to a reallocation
of resources into the advantaged sector from the relatively disadvantaged one.
In this example, a small comparative advantage is extended to traditional agricul-
ture. Output from traditional agriculture may be expected to rise, exerting
downward pressure on prices received. Lower prices received by farmers will
discourage output from the advanced agricultural sector where techniques are
assumed not to have changed. Forward linkages through the rural nonfarm and
urban industries may be comparable to those associated with the advance in the
modern agricultural sector and result in increased nonfarm output and lower
But impacts on the factor markets of a relative advantage for the traditional
agricultural sector are different. Traditional farmers use more labor but less land
and capital, per unit of output, than those in the advancing sector. Consequently,
a shift favoring the more traditional, less advanced agriculture leads to tighter
labor markets and, if production in the advancing sector is reduced in response
to falling prices received, to slack in the land and capital markets. Wages rise, but
rents and interest rates tend to fall. The result of an improvement in traditional
agriculture is lower incomes to those whose living depends on rent and interest,
"Adoption of appropriate levels of technology, rather than high levels, can min-
imize the adverse economic impacts sometimes visited on traditional farmers
by the introduction of technology." (Korea)
but higher incomes to wage earners. This would reduce poverty intensity and
ease pressures on migration of farm people to urban places.
Assistance to the traditional agricultural sector works toward the objective of
increased food supplies, just as does aid to the advancing sector. Consideration
of side effects suggests that it is advantageous to those who participate in the pro-
gram and has beneficial effects on the nonfarm sector through forward and back-
ward linkages. It may prove disadvantageous, however, to successful commercial
farmers as well as to landowners and money lenders.
2. Expanded Markets
One of the expected consequences of increasing agricultural output is down-
ward pressure on prices received by farmers, because a larger quantity is ex-
pected to clear the market at a lower price, other things being equal. If the price
decrease is large in relation to the quantity increase, this will lead to reduced
total receipts in the agricultural sectors. Such markets are called inelastic.
An increase in agricultural output can decrease prices and have the unwanted
side effect of reducing farm income. One approach to maintaining farm income
in such situations is through modification of the market institutions by means
of agricultural price or income supports. An alternative is to expand both domes-
tic and foreign markets for farm products so that larger quantities will clear the
market without depressing prices. Such a policy pursued in isolation of other
policies raises the prices received by farmers and stimulates added agricultural
production. Let us consider the economic impacts of such a market expansion
program undertaken without accompanying technological advances or other
When increases in final demand result in higher prices for farm products, these
price increases are passed forward to food processors and others in the rural and
urban sectors. These users may reduce their purchases. While sales of food and
kindred products rise directly because of the farm product market expansion,
there is a tendency to reduce sales in other nonfood markets linked to agricul-
ture, such as textiles, construction, and chemicals, because of rising costs of pur-
chased agricultural products. If these side effects are large enough to be felt, the
tendency is toward reduced quantities of nonfarm sales at higher prices, and
toward reduced demand for resources by nonfarm industries. As a result, prices
tend to rise for the products of all sectors-agricultural, rural, and urban. In-
creased demands for land, labor, and capital in the expanding agriculture are like-
ly to more than offset the slightly reduced demands for resources in the nonfarm
industries, and factor prices-rent, interest, and wages-are expected to rise.
A program to expand agricultural markets, other things being equal, is likely
to benefit both the advancing and the traditional agricultural sectors. And, as a
side effect, owners of land, labor, and capital stand to benefit from upward pres-
sures on rents, wages, and interest rates. But there are some undesirable conse-
quences as well. General price levels will tend to rise in all industries in response
to inflationary pressures. This will slacken demand for the products of certain
rural and urban industries and cause some plants to operate at reduced levels of
capacity utilization. This will exert downward pressure on profits to some
owners of fixed assets in the rural and urban sectors.
New technology plus expanded markets: The above analysis considered an
agricultural market expansion program operated in isolation of other programs.
What happens when it is combined with programs to introduce output increasing
technology to the advancing agricultural sector in such a way that the level of
prices received by farmers is about unchanged? The adverse effects on owners of
fixed assets in related nonfarm rural and urban industries are removed. But, ad-
verse effects on the traditional agriculture sector and on the labor market are
introduced, to the extent that the adopted technology gives a comparative advan-
tage to advancing agriculture. Balanced growth among all sectors will be shown
in a later section to require explicit nonfarm policies to complement and assist
agricultural growth policies.
Export and import markets: Market expansion for agricultural products can
be in the form of increased domestic use, expanding exports, or reduced imports.
It is worthwhile to consider the appropriateness of the market expanding insti-
tutional arrangements. Appropriate technology emphasizes the expansion of
local village markets for goods and services, the production of which increases
the utilization of local resources. For example, India once set a target that 60
percent of village textile output would be locally consumed, with the target
rising to -80 percent in the course of time [17, p. 4]. There are innumerable op-
portunities for potential benefits to be lost through inappropriate off-farm hand-
ling of imports of farm inputs and materials and exports of agricultural products,
even through appropriate technologies are adopted on the farm.
In many developing nations, an increase in agricultural output is destined for
export. Export expansion programs can lead to gains in foreign exchange
through an improved balance of payments. But the gains may be less than could
have been achieved through alternative policies. First, it may be more advan-
tageous to process and distribute farm products locally, as, for example, through
increased domestic consumption of animal products, rather than the exchange of
livestock for imports. Secondly, if export is an appropriate outlet, it may be
more advantageous to seek opportunities to add value through processing within
the country as an alternative to exporting the raw product. Export canned
meats, for example, rather than live animals.
Most advantages of increased farm output can be captured domestically
instead of lost through lower prices or through increased exports if increased
output can be used to reduce imports. For example, increasing the output of
rice to reduce food imports can make a nation more nearly self-sufficient in food.
However, malappropriate techniques to achieve import substitution may lead to
disenchantment if they are based on "large scale, urban-based, foreign-owned
firms" [5, p. 2].
Backward linkages affecting the supply of purchased farm inputs may also dis-
sipate potential gains in income and employment from expanding the markets
for farm products unless appropriate policies are adopted. For example, pro-
spective gains to the nation may be diminished if increased demands by farmers
for purchased machinery and fertilizer are met by imports rather than by domes-
tic production. Appropriate policies may be required to insure that backward
linkages are formed through use of local land, labor, and capital rather than
through imports of farm inputs. To the extent that some imports are neces-
sary, long-run emphasis can be directed toward importing raw materials as
much as is practical with a view to adding value through domestic processing and
3. Increased Resources
Policies to increase availability of land, labor, and capital in a developing na-
tion can be important contributors to economic growth. Programs to enhance
availability of natural resources, upgrade labor skills, or provide capital to one
economic sector will have impacts on the output and prices of all sectors.
No matter which resource is increased or which sector receives the initial di-
rect impact, there is a tendency for utilization of that resource to lead to an in-
creased output in all sectors. The more the various sectors are interlinked
through forward and backward linkages, the more responsive any one sector will
be to changes in resource availability in another sector. This output increasing
effect implies a tendency toward downward pressure on all final product prices
in response to an increase in the availability of any resource.
The largest increase in quantity produced does not necessarily accrue to the
sector initially affected by the resource increase. For example, an increase in
agricultural land will not necessarily generate a proportional increase in output.
Gains are limited not only by diminishing returns to land, but also by reduced
prices received by farmers. If prices received fall by a greater percentage than
output increases, then the market is inelastic and the gain in output will be rela-
tively small. But the reduction in price can stimulate increased output in rural
and urban industries which purchase farm products. If output increases from
those industries are accompanied by relatively small decreases in prices received
(that is, if those rural nonfarm and urban industry markets are elastic), then the
gains in quantity of output may be larger for the rural and urban industries which
purchase cheaper farm products than the gains in the agricultural sector to which
the increased land was made available. Competitive adjustments will result in the
largest percentage gain in output, in response to an increase in resource availabili-
ties, in the sector with the most elastic market. Prices received will likely fall the
most, however, in the sector with the most inelastic market. In general, markets
for urban products are relatively more elastic than those for farm products.
Hence, regardless of which resource increases in availability and regardless of
which sector is the primary user of the resource, we can expect the greatest per-
centage gain in output from the urban sector and the least from agriculture. As
a corollary, we can expect final product prices to fall most in agriculture and least
in the urban sector in response to any increase in resource availability. Hence,
the urban sector is likely to derive most advantage from an increase in the avail-
ability of land, labor, or capital; agriculture will realize the least advantage.
The tendency for keen competition between the traditional and advancing
agricultural sectors, due to the substitutability of the final products of the two
sectors, affects the agricultural response to changing resource availability. Both
sectors may benefit directly from increased supplies of-and lower prices paid
for-land, labor, or capital. But the traditional sector, with its limited reliance on
the market system, will benefit less than advancing agriculture from concomitant
expansion in rural and urban industries which demand farm products and also
supply purchased farm inputs. This gives the advancing agricultural sector a com-
The advancing sector has an additional advantage when it is significantly
smaller than the traditional sector. Large percentage gains in output from a
small advanced sector may result in relatively small percentage gains in output
of agriculture as a whole. Therefore, there will be only moderate downward
price pressures in response to a relatively large gain in output in the advancing
sector. That is, prices received in the advancing sector may appear to that sector
to be relatively elastic. As the advancing sector exploits what appears to it to be
an elastic market, the traditional sector will experience falling prices received
from what is, in fact, an inelastic market and net income will be reduced on tra-
ditional farms. Hence, we can expect a relatively large traditional agricultural
sector to be disadvantaged relative to the smaller advancing sector as resources
become increasingly available.
More land: Consider a program which makes more land available at lower
rents. Suppose it is agricultural land and that the initial impacts work through
the agricultural sector. Both the traditional and advancing sectors are induced to
use more land relative to labor, capital, and purchased farm inputs. The bene-
fits are passed on through forward linkages to purchasers of farm products in the
rural and urban sectors who are able to obtain more farm products at lower
prices. There is a feedback to agriculture through increased supplies at lower
prices of purchased farm inputs-and of consumer products-from the rural and
This feedback gives a small comparative advantage to the advancing
agricultural sector which relies relatively more than the traditional sector
on purchased farm inputs. Hence, the advancing agricultural sector will seek to
increase output by a larger percentage than the traditional sector and bid away
resources from the traditional sector. Relatively lower land rents may encourage
the traditional sector to maintain or increase agricultural production by using
more land but less labor and capital. It is as if farmers sought to maintain output
in the traditional sector by using increased quantities of cheaper land for more
extensive enterprises, such as cattle rather than dairy, or grain rather than vege-
tables. Labor and capital released from the large, but contracting, traditional
agriculture can more than offset mounting demands for labor and capital in the
small, but advancing, agricultural sector as well as in the rural and urban sectors.
Consequently, slight downward pressures on wages and interest rates, as well as
reduced rental rates, can be expected.
The overall consequence of increased agricultural land availability is increased
production of final products in all four sectors (including those which are not
land based), reduced prices received for final products, and reduced prices paid
in all factor markets. Profits are likely to rise for owners of fixed assets in rural
and urban industries and in advancing agriculture. But traditional agriculture
may find itself disadvantaged because of lower prices received and a loss of a
share of the market to the advancing sector.
More capital: Consider a program which makes more capital available at lower
interest. Such a program would tend to increase output in all sectors and reduce
prices received for final products, regardless of the sector to which capital may
initially have been made available. Output increases are likely to be greatest for
the urban sector where markets are relatively more elastic. Price reductions will
be greatest for the farm sector where markets are relatively inelastic. Cheaper
purchased farm inputs from the rural and urban sectors and lower costs of capital
give a comparative advantage to the advancing agricultural sector. The traditional
agricultural sector finds receipts falling faster than costs, and returns to fixed
assets are reduced. The traditional sector is likely to seek to maintain or increase
production by substituting relatively cheaper capital, and purchased farm inputs
from the rural and urban sectors, for land and labor. The land and labor released
from the traditional sector may more than offset added use by other sectors and
induce lower rental and wage rates.
More labor: A program which makes more labor available for lower wages
may have output increasing and price reducing effects on agricultural, rural, and
urban industries. The effects may be different between the two agricultural sec-
tors, with the traditional sector releasing some land and capital while absorbing
more labor. Enough land can be released from the traditional sector to more
than offset gains in land use from the advancing sector and exert downward pres-
sure on rents. However, reduction in capital from the traditional sector may less
than offset increased capital requirements in other sectors, resulting in some up-
ward pressure on interest rates.
The response of the whole economy to a given percentage increase in labor
supply is likely to be greater than the response to an increase in the supplies of
either land or capital. This is because labor costs constitute a larger percentage
of total costs than do land or capital costs. Urban and rural industries gain from
an increase in the labor supply relative to agriculture; they realize larger output
increases, smaller price decreases, and more profits. In agriculture, declining
prices received for farm products may fail to offset reduced labor costs; profits
can decrease for both the traditional and advancing sectors even though agricul-
tural output increases in consequence of the increased availability of labor. An
important result is that laborers dependent on wages tend to be disadvantaged
relative to property owners who depend on rents and interest.
4. New Institutions
Changes in flows of goods and services associated with new forward and back-
ward linkages may precipitate changes in local political, social, religious, and
economic institutions. Analyses all too frequently assume that appropriate in-
stitutional responses will occur as needed to deal with improved technology, ex-
panding markets, or increased resources. For example, increased output can lead
to increased dependence on market institutions and "... the play of forces in
the market normally tends to increase, rather than to decrease, the inequalities
between regions" [22, p. 26]. Appropriate institutions frequently fail to arise.
The result is either a market failure associated with an institutional void, or mal-
appropriate institutional arrangements. Institution building is an important
adjunct to aid programs. Suppose that tomato production practices are intro-
duced to a village where rice has been the only cash crop. Further suppose that
no public policies are formulated with respect to tomato marketing institutions.
At one extreme, it may happen that no such institution will arise on its own. This
is one meaning of the term "market failure." The harvested tomatoes will rot on
the road near the farm because the farmers have no place to take them. The new
technology will add to no one's welfare. At the other extreme, the marketing in-
stitution which arises may be a single processing plant in a distant, central city to
which farmers are expected to carry their tomatoes. Once the village farmers be-
come dependent on such a plant, it will have monopoly power over the tomato
market. It may be possible for the monopsonist to exploit his power to the point
that the benefits of the agricultural development program accrue to the monop-
sonist, rather than become distributed among the farm families in the rural villages
as originally envisioned by the program.
In addition to new economic institutions, there will also be needed new politi-
cal institutions to resolve conflict, and new social and religious institutions to
adjust to changing values and goals associated with rising incomes and improved
levels of living.
In most ... developing countries ... subsistence farming is
women's work .... When, however, large scale mechanization
is introduced ... subsistence farming must become men's work
because machines are regarded as their business .... This ... can
only be to (women's) disadvantage because they will lose the
considerable status they now enjoy .... Rather than attempt
social revolutions of this order ... it would be far better to ...
reduce their labors by providing them with appropriate or
intermediate technology .
Introduction of new agricultural technology needs to be accompanied by appro-
priate social technology as well, both on and off the farm.
5. Changed Spatial Relationships
There is a tendency for forward and backward linkages in a growing economy
to create jobs in the cities at the expense of simpler linkages located in rural
villages or on the farm. In the extreme, this tendency points toward an economy
in which all nonfarm economic activity occurs within cities and in which only
successful farmers live in the country. For example, an urban machine shop
may replace a village blacksmith, or an urban creamery may replace home butter
production. A side effect of adopting advanced technology on the farm, finding
new export markets, or accepting a development loan can be to destroy jobs in
rural areas and to concentrate new job openings in the cities. New job openings
may or may not offset the number of jobs destroyed by new urban technology.
This may lead to unemployment and underemployment in rural areas, migration
from farm to city, and excess concentration of urban dwellers, while contributing
to depopulation of the countryside.
"Perhaps the most important feature of a development strategy based on de-
centralization of production by means of small scale industries is that it creates
"There is a tendency for forward and backward linkages in a growing econ-
omy to create jobs in the cities at the expense of simpler linkages located in
rural villages or on the farm." (Korea)
UK i I
a balanced regional distribution of income and investible surplus at source" .
If one rural area is developed faster than another, population may migrate to the
improving area. "Too great an influx may prove counter productive ... it may be
prudent to stimulate ... development of areas with declining or stagnant popula-
tions" [18, p. 45]. Each area has to develop in an internally balanced way. Tex-
tile production "can not develop in isolation ... [it must be] supported by the
development of village industries which in turn are part of a total village economy
mainly based on agriculture .... This brings us to the concept of area develop-
ment" [17, p. 4, 5].
An appropriate policy toward the spatial distribution of forward and backward
linkages to an advancing agriculture is complementary with policies to deal with
other side effects discussed above. Such policies need to direct the spatial flows
of goods and services, people, capital, energy, and information to where they are
needed. If food processing and implement manufacture are performed in the local
village where the farming is done, then the technology used in the nonfarm indus-
tries related to agriculture is more likely to be appropriate to the labor and capital
availabilities of the nation. Local resources are more likely to be used to produce
purchased farm inputs, and the increased farm output is more likely to be pro-
cessed and consumed locally. These effects contribute to an improvement in the
quality of life in the same locality that is adopting the improved agricultural tech-
nology. The inducements to migration and urban congestion will be diminished.
The needed social, religious, political, and economic institutions will be of smaller
scale, operated by local people toward local goals and are, therefore, more likely
to be appropriate.
The Nonfarm Sector
Programs to increase food supplies and improve diets were shown above to
have both favorable and unfavorable impacts on the economy. In this section, it is
shown that programs to develop the industrial sector also have both favorable and
unfavorable impacts. The chief result of this analysis is that certain industrial de-
velopment programs have plusses at exactly the points where agricultural develop-
ment programs have minuses. For example, finding new leather and wood product
markets for rural industries can create nonfarm jobs in villages where farmers are
displaced by advancing agricultural technology. Programs to create balanced
growth require nonfarm development policies which will ameliorate unintended
and undesired side effects of agricultural development programs. The nonfarm
policies needed to balance agricultural growth examined below relate to (1) ex-
panded resources, (2) new nonfarm technology, (3) expanded markets for non-
farm products, (4) rural oriented regions, and (5) local rural institutions.
1. Expanded Resources
A policy to increase resource availabilities tends to increase urban production
more than agricultural, and to reduce agricultural prices more than urban. This
results from the forward and backward linkages among sectors, and from the
relatively more elastic urban market for which output increases are accompanied
by relatively moderate downward pressure on prices. No resources are excepted
from this rule, not even those which are immobile or industry-specific. Impacts
of increasing land specifically used in agriculture were discussed above. Capi-
tal may be considered liquid and not industry-specific for present purposes.
Industry-specific labor, represented by alternative skill levels required by tradi-
tional agriculture, advancing agriculture, rural nonfarm industries, and urban
industries, is discussed below.
Rural labor: Policies, not accompanied by wage supports, to increase the sup-
ply of rural nonfarm workers and workers in advancing agriculture can be ex-
pected to lead to more employment in these industries at lower wages. These
workers are likely to be more skilled than those in traditional agriculture, but less
skilled than those in high wage urban industries. This change in supply makes
rural nonfarm wages and wages on advanced farms closer to wages on traditional
farms, and it increases the gap between rural and urban wages. The response of
rural nonfarm industries to the increased labor availability is to produce more
rural products at lower prices. Farm and urban industries which purchase the
products of rural industries, or sell products to them, are stimulated to expand
through forward and backward linkages.
The response in advancing agriculture, however, may be dominated by the
keen competitive advantage it gains over traditional agriculture. This advantage
may allow advancing agriculture to take some of the total market away from tra-
ditional agriculture. One source of this advantage is that the lower prices for pur-
chased farm inputs following the growth of the nonfarm sector is more important
to advancing agriculture than to traditional agriculture. But a more important
source of this increased advantage lies in the differences in the qualities of the
labor forces required by the two agricultural sectors. Workers in the advancing
agricultural sector will be relatively more skilled and more able to compete for
jobs with workers in rural nonfarm industries than are workers in traditional agri-
culture. Hence, the stimuli to increased output from traditional agriculture are
mostly through its limited forward and backward linkages to wider markets and
to reduced costs of purchased inputs. Advancing agriculture not only has
stronger linkages to these expanding economic forces, but also has access to
more and cheaper labor. The traditional sector may be caught by lower prices
received and higher cost for land and capital. These need not be offset by re-
duced prices for labor and purchased farm inputs, so output may be curtailed in
traditional agriculture and profits may decline.
Urban labor: Policies to increase supplies of relatively skilled, higher-wage,
urban labor, in the absence of wage supports, can lead to increased urban employ-
ment at lower wages. Urban industries will tend to use more capital and increase
purchases through backward linkages to farms and rural industries. Increased
supplies from urban industries will exert downward pressure on prices received.
Side effects on the agricultural sectors will encourage increased production,
largely in response to increased purchases of agricultural products by the ex-
panded urban sector. Some upward pressure will be exerted on prices received
by farmers. Expanding demands for land, labor, and capital will exert upward
pressures on rent, agricultural and rural wages, and interest. The advancing agri-
cultural sector will gain a slight competitive advantage over the traditional sector
from these economic forces and will seek to expand its share of the total market.
The traditional sector may about (but probably not quite) maintain output and
profit levels. However, higher wage rates in the advancing agriculture and the
rural sectors may encourage workers to leave traditional agriculture. The result
may be a traditional agriculture whose output is about maintained by using
relatively more land and less labor.
Side effects on the rural sector will be to encourage increased production,
largely in response to increased purchases of rural products by the expanded
urban sector. Reliance of this sector on purchases of farm products through its
backward linkages will support the expansion discussed above in advancing agri-
culture. Increased labor requirements by advancing agriculture will attract a
number of workers in rural areas whose skills are transferable between the ad-
vancing agricultural sector and the rural sector. Consequently, the rural sector
is likely to find itself paying higher wages but employing about the same number
of workers. The expansion in rural sector output will likely depend on adopting
methods which use relatively more capital and more purchased urban and agri-
cultural inputs relative to labor.
Most of the consequences of expanding the urban labor supply are advanta-
geous to the various sectors. Possibly undesired consequences include: (1)
lower wages to urban workers who had jobs before the policy was implemented,
and (2) an acceleration in the replacement of traditional agriculture by advanc-
2. New Nonfarm Technology
Introduction of new technology on farms creates a local environment of learn-
ing new ways of doing things which can be extended to the nonfarm sector.
Some of the nonfarm industries linked to agriculture in the developed countries
have been shown to have economies of scale. This is true, for example, in many
segments of the food processing industry. Exploiting these economic opportuni-
ties through heavy capital investments implies demands for highly skilled labor
with accompanying losses of job opportunities for unskilled labor. In countries
where forward and backward linkages are sizeable, an expanding agriculture
could ultimately induce a loss in nonfarm unskilled jobs and result in limited
economic opportunity for the nation as a whole. To maintain equity and in-
crease opportunity, it is as important to introduce appropriate technology to the
nonfarm, agriculture-related jobs as to jobs directly on the farm [201.
Modern, large-scale industries have no place in remote rural villages. Rather,
such villages are in need of small changes in the ways of doing things which can
be introduced easily at minimal cost . This applies both to industries
which have close links with agriculture (agribusiness) and to those which do
Appropriately scaled industries can emphasize use of local materials in prefer-
ence to imports, and emphasize value added to raw materials in preference to
import of finished material. For example, "wherever in the world suitable soils
are to be found and a source of fuel is available, burnt clay bricks are likely to
be the cheapest walling material ... in rural areas they are produced by ancient
manual processes using the simplest equipment ... today handmade bricks are
much in demand" .
Simpler technologies often prove to be more efficient than complex ones. In
a study of shoemaking firms in Ghana, it was found that "the 'intermediate' ma-
chine is much cheaper to buy, easier to operate and simpler to maintain-while
sacrificing nothing in terms of job quality" . The appropriate technology
frequently turns out to be rediscovery and extension of indigenous technologies,
rather than imports from developed nations . The same educational institu-
tions used to promote appropriate agricultural technology can be used to help
create, rather than destroy, nonfarm jobs and increase output of rural nonfarm
Rural technology: Some economic development programs focus on introduc-
ing improved technology to rural nonfarm industries. To an extent, there is a
ready local market for the increased output from such innovations. But, if the
products are destined for nonlocal markets, such as urban textile outlets or
export of wood products abroad, the increased output can be expected to exert
downward pressure on prices received for rural products. Forward linkages
pass beneficial effects of price decreases to the urban sector because of increased
rural supplies at lower prices. Backward linkages increase the purchases of farm
products by rural industries in order to maintain a larger output. But the ulti-
mate effect on agriculture is determined by changes in the resource markets.
Resource demands are increased not only from rural industries, but also from
the rural linked urban and agricultural industries: rent, wages, and interest rise in
order to draw forth larger supplies of land, labor, and capital. The agricultural
sector benefits from increased purchases of goods and services from rural indus-
tries at lower prices, but faces additional costs associated with increased rent,
wages, and interest. If the benefits outweigh the costs, then total agricultural
output will rise and some downward pressure on prices received for farm products
will result. Interest rates may rise relative to wages and rents. A small relative
advantage to the traditional agricultural sector may occur because that sector de-
pends more heavily on purchases from rural industries than the advancing sector
does, and it depends more heavily on labor relative to land and capital. Hence, a
possible side effect of improving technology in rural nonfarm industries may be
some strengthening of the traditional agricultural sector relative to the advancing
sector. Consumers benefit from increased supplies from all four sectors at lower
prices. Markets for land, labor, and capital may become tighter. Most of the ad-
verse effects are likely to be borne by the advancing agricultural sector which has
become caught in a cost-price squeeze.
Urban technology: Introduction of advanced technology to increase output
per unit of input among urban industries increases output and exerts downward
pressure on prices received for urban products. Through forward linkages, more
urban products will be supplied to farm and rural nonfarm industries at lower
prices. Through backward linkages, the demand by urban industries for farm
and rural products will rise. The urban purchases of farm and rural products
are likely to more than offset increases in farm and rural output, and put up-
ward pressure on farm and rural prices. Demands for land, labor, and capital
will increase and rents, wages, and interest will rise. Interest rates are likely to
rise relatively more than wages and rents. This will give a small comparative
advantage to the traditional agriculture, which relies less on capital markets than
the advancing agriculture. As a consequence, there may be a substitution of rela-
tively more output from traditional farms for less output from advanced farms.
Even so, the advancing agricultural sector can be expected to increase profits
because of higher prices received and of substitution of more of the cheaper
urban goods for less of the more expensive land, labor, and capital.
3. Expanded Markets for Nonfarm Products
Some nonfarm industries are directly and closely related to agriculture. A
blacksmith sells services to local farmers; a village shoe factory purchases local
leather. In the short run, as agriculture expands through improved technology,
wider markets, and access to more resources, these agriculturally linked industries
may be most important because of their complementary relation to the success
of the agricultural development program. Many jobs induced through forward
and backward linkages to the advancing agriculture can be appropriately located
in rural rather than urban areas. Rural industries can be used to transport, pro-
cess, and distribute some of the increased volume of farm output, and to manu-
facture and market some of the purchased farm inputs.
In the long run, development of markets for industries not closely linked to
agriculture may be more important to national growth. Explicit efforts are
needed to expand local rural markets, national urban markets, and export mar-
kets for nonfarm products. Expansion of local rural markets for rural industry
is associated with improved rural incomes and progress in the quality of life. This
includes, for example, increased use of local materials, labor, and capital to pro-
vide better housing and furnishings, clothing, processed foods, transportation,
health, education, and other goods and services. Products of wood, leather, clay,
and other locally available materials can be the basis for development of a village
economy if adequate markets are developed in the urban centers as well as
Markets for rural products: Consider a program for expanding the markets for
rural nonfarm products in isolation from other programs. An expanding rural
nonfarm sector will increase the demand for rural labor and capital, and will in-
crease the purchases from farms and from urban industries. Backward linkages
to the agricultural and rural sectors stimulate output in those sectors, and induce
additional demands for land, labor, and capital. Rents, wages, and interest will
If the expansion in the market for the products of rural-based industries is
the result of a change which permits larger quantities to clear the market at
higher prices than before, then the prospect of higher prices received induces in-
"Many jobs induced through forward and backward linkages to the advancing
agriculture can be appropriately located in rural rather than urban areas."
(Small manufacturer of chicken feeders in Pakistan)
creased output from rural industries. These higher prices can have unfavorable
impacts on the national economy through forward linkages which moderate the
beneficial effects from backward linkages.- Urban industries, facing higher prices
for rural products, reduce purchases and, with higher resource prices, reduce
purchases of labor and capital. Reduced urban production puts upward pressure
on urban product prices, which raises the cost of purchased urban goods to the
agricultural and rural sectors. It simultaneously reduces the purchases of agricul-
tural products by urban industries.
The rural nonfarm sector is generally a heavy user of farm products. Expand-
ing purchases of farm products associated with a growing rural nonfarm sector is
likely to more than offset output increases in agriculture so there will be less farm
output available for final markets. This can exert upward pressure on prices re-
ceived by farmers.
In the factor markets, interest rates may rise relative to wages, thus giving a
comparative advantage to the traditional sector which uses relatively more labor
and less capital. Profits are likely to be reduced in advancing agriculture and also
in the urban sector, which may help explain why owners of fixed assets in these
sectors tend not to recognize expanding markets for rural products as an impor-
tant source of economic development.
New farm technology plus expanded rural markets: A strategy which expands
rural nonfarm product markets complements one which introduces agricultural
technology. For each negative impact of one of these two strategies, the other
strategy counters with a positive impact. Two important complementary rela-
tions worth reviewing here are (1) the rural nonfarm industries can absorb labor
in rural villages close to the farms from which the labor was displaced, and (2) the
rural nonfarm industries can absorb some of the increased agricultural profits in
villages close to the farms on which the surplus was accumulated. The two strate-
gies-advancing agricultural technology and expanding markets for rural indus-
try-probably belong together as part (but not all) of any overall development
policy for a developing nation.
Markets for urban products: Consider a program for expanding the markets
for urban products. This is likely to have largely beneficial effects on the urban,
rural nonfarm, and agricultural industries. The beneficial effects derive primarily
from backward linkages reflecting requirements of the urban sector for agricul-
tural and rural products. Pressures on all prices in both factor and product mar-
kets are upward, that is, inflationary. The high substitutability of products be-
tween the two agricultural sectors may lead to some shifts between these sectors.
The rising prices for land, labor, and capital may give a small comparative advan-
tage to the traditional sector which spends relatively less for the services of land
and capital and relatively more for labor per unit of output than the advancing
sector. Consequently, expanding urban markets can strengthen the traditional
agricultural sector relative to modern agriculture.
4. Rural Oriented Regions
Man has steadily concentrated places of work and residence in and around
cities. Even so, most of the inhabited space, even in developed nations, is rural.
An economic development program for a nation must be concerned, in part, with
geographic places which are relatively isolated from urban activity. A nation is
concerned with appropriate development for people living anywhere in its entire
land area, not with rapid development of only its urban centers.
Some farmers and rural nonfarm people live within easy access of urban
places, but most find themselves isolated from such places and relatively few
members of rural villages make frequent trips to urban centers. Smaller towns
and villages, although isolated from the major urban centers, function as the cen-
tral places for rural oriented communities. In a developed country, rural oriented
regions may take up most of the land area but contain a small percentage of the
population. In a developing nation, such areas are likely to contain most of both
the land area and population.
Rural villages and towns may be isolated from central urban places, but they
are not necessarily isolated from each other. Small villages may be within walk-
ing distance of one another and easy motorcycle distance from other small towns
which provide markets for agricultural resources and products, as well as markets
in which to buy, sell, or barter nonfarm goods and services of importance to
Rural villages and adjacent farm areas form a geographically contiguous func-
tional economic unit. Local development involves such units and must focus on
the whole area, not just on some of its parts. In addition, these units are econom-
ically and socially linked with other nearby villages and towns. These larger
geographic areas connecting several villages may be appropriate regional units on
which to base many economic development programs. For example, the local
village may be the appropriate area to consider when adopting new technology
for baking food for local consumption, whereas a rural oriented region com-
prised of several villages and a small town may be the appropriate area to examine
for suitability of a shoe factory.
Programs which concentrate on expanding the agricultural sector through ad-
vancing technology, expanding markets, and increased availability of specialized
resources are not in the public interest if they fail to account for impacts and
side effects on local regions. If the development programs are accompanied by
job displacement of villagers and traditional farmers, bypassing of local service
and trade facilities, and outmigration of the disadvantaged, then regional imbal-
ances will arise, presenting new social and economic problems.
5. Local Rural Institutions
Failures in past aid programs, wherein developed nations have sought to im-
prove living standards in developing ones, may be partially attributable to inade-
quate consideration of local rural institution building [25, p. 1].
It is not enough to design an appropriate technical or manage-
ment innovation for use in developing countries; information
about the idea, whatever it is, has then to be disseminated ....
There is thus a need for a delivery system which will introduce
new ideas on a wide scale, especially in rural areas where com-
munications are poor, where strangers may be mistrusted and
where the well-educated minority, even if they originate from
the area, are unwilling to return .
Introduction of appropriate technology may induce changes in local economic,
social, political, and religious institutions. Appropriate policies for nonfarm in-
stitutional arrangements accompanying extension of aid and adoption of new
technology in agriculture will need to consider: that needed market institutions
arise, that the new institutions themselves use appropriate technology which meet
local and community needs, and that the benefits from value added through pro-
cessing and distribution are distributed equitably. This may include government
regulation of marketing institutions and encouragement of cooperative ventures.
Local institutions are needed to coordinate diverse, well intentioned efforts
that might reach specific program goals but have unintended and undesired side
effects. For example, "the 'ruralization' of conventional schools to increase the
relevance of rural education ... in most cases has been an isolated action unsup-
ported by the creation of productive jobs for school leavers" [15, p. 290].
New technologies and new ways of doing things challenge established attitudes,
values, and beliefs. The idea that vertical motion of a piston is mechanistically
related to the rotary motion of a driving wheel may be in conflict with local
religious beliefs concerning cause and effect. One idea cannot be adopted with-
out raising conflicts about holding another. "The goals of peasants extend be-
yond profit maximization ... and are realized primarily through religious and
secular ritual, kinship ties, and other social obligatory actions" [6; see also 29,
ch. 4]. "It is the character, preferences and expectations of the people and the
nature of their response ... that determine the pace of economic development
rather than the economic or financial soundness of the plan itself" [34, p. 27].
It is sometimes asserted that introduction of intermediate technology through
technical advice and finance should be accompanied by large-scale management
and marketing functions [16, p. 145]. This may be a mistake. Success of a pro-
gram emphasizing new ways of doing things requires not only that technology is
appropriate to local resources and markets but also appropriate to local cultural
Economic institutions may be required to create markets where exchange
was primarily barter. These markets will need to link villages with nearby towns
and with distant cities, domestic or foreign. They need to be built with concern
for equitable distribution of income in addition to efficient distribution of indus-
try products. Other local institutions will be required to assess ends and resolve
various local and national conflicts while adjusting from a traditional society to
an advancing one.
Conclusions and Implications
An objective of economic programs in developing countries is to increase food
production, feed an expanding population, and support economic growth. There
is concern both with the efficiency of producing and with the equity of distribut-
ing added food and income.
An appraisal of the total impact of such programs for agricultural development
requires that impacts on well-being in all sectors of the economy are monitored.
Changes in one attribute of the economy, such as introduction of advanced tech-
nology to agriculture, have impacts throughout the economic system. Some con-
sequences are desirable and some are not. This paper examined strategies de-
signed to offset unwanted side effects of agricultural development programs and
to balance national and regional growth.
Intermediate agricultural technologies, which are efficient and also appropriate
to social, religious, political, and economic conditions, are preferred to high tech-
nologies. The latter may appear to drive faster and harder toward efficiency goals,
but appearances can deceive. High technology, even when successfully adopted
by the advancing agricultural sector, tends to increase the income distribution
problems between the haves and have-nots. Even appropriate agricultural tech-
nology, if taken as a single means toward a single end, can have undesired side
effects. Two mechanisms through which the effects of agricultural advance are
transmitted to the rest of the economy are (1) forward and backward linkages
from the advancing agricultural sector to the nonfarm sectors and (2) changing
opportunity costs for resources, particularly for unskilled nonfarm employment.
A successful program to increase food supplies in developing countries needs
to be accompanied by companion strategies to maintain balanced growth through-
out the economy. The companion strategies serve to increase the availability of
local resources, introduce appropriate technologies in the nonfarm sectors,
expand markets for local products, ensure equitable regional distribution of
economic gains, and build appropriate institutions.
Unskilled labor is the resource most likely to be in abundance and underused.
Some policies emphasize birth control or migration strategies to deal with the
labor surplus. The latter tends to be more a way to transfer the problem from
one region to another than to solve it. Education programs which raise the skill
levels of these workers and enable them to join a relatively skilled labor force
appear promising. Policies to introduce large inputs of capital from abroad tend
to accompany inducements for malappropriate technologies and institutional
arrangements; emphasis at first should be on finding appropriate opportunities
for small increments of local capital accumulated from the increasing agricultural
surplus. Natural resource development policies may emphasize development of
indigenous materials, including minerals, timber, and water, for use in both farm
and nonagricultural industries.
There is a tendency for the gains from increased availability of agricultural
resources to be captured not only by the advancing agricultural sector, but also
by the urban sector, with adverse side effects on traditional agriculture and on
the nonfarm rural sector.
Technological advance must be appropriate for nonfarm as well as farm eco-
nomic activity. This includes finding ways for processing and distributing farm
products and for manufacturing and marketing purchased farm inputs. It also
includes finding ways to encourage village and urban nonagricultural industry
development needed to create jobs and increase productivity of unskilled labor.
Introduction of appropriate technology requires on-the-job training for workers
as well as technical assistance for entrepreneurs. The burden for conducting
research and disseminating new ideas may, in the beginning, depend on nonlocal
people, but implementation and further developments of appropriate technology
over time should become endogenous. New technology tends to be advantageous
to those who adopt it, but can displace workers and can increase the economic
problems of some of those who do not adopt it.
Market expansion should concentrate on local village markets first. Derived
demand for jobs for unemployed village residents depends on building the eco-
nomic base of the village community. The quality of life of those residents de-
pends on their opportunities to consume what they produce. Domestic urban
markets should receive attention second, and expanding markets for exports
third. Value added domestically is preferred to exports of raw materials. Import
substitution and domestic value added to imports of raw materials add to de-
rived demands for domestic resources.
Expanding domestic and export markets for the products of rural industries
creates a demand for rural workers which can complement an aid program which
increases food supplies by displacing traditional workers in agriculture. Expand-
ing domestic and export markets for agricultural products encourages increased
utilization of resources and enhances the agricultural sector. But higher costs to
nonfarm and to urban industries of farm products and of resources can reduce
profits to owners of fixed assets in some of these industries.
Regional emphasis should begin with development of a rural, nonfarm eco-
nomy in the agricultural village and small town. At first, the local economy may
be linked to the agricultural base, but over time nonagricultural industries need
to be developed to sustain regional growth. Explicit policies need to be imple-
mented to develop transportation and communication channels among villages
and small towns and between these and the larger urban centers. Policies need to
address equitable regional dispersion of economic development over the entire
nation and need to be concerned with maintaining a rural-urban balance.
Failure to attend to regional balance may result in losses of jobs, income, and
capital investment in rural oriented regions even though the agricultural sector
is successfully advancing there. Consequent outmigration can result in concentra-
tion of the jobless and the underemployed in major urban centers.
Institution building may emphasize economic institutions, including those
which create markets for goods and services, money markets and institutions
which establish goals and plans for economic development. But these must be
accompanied by concern for building social, religious, and political institutions as
well, which are organized to assess goals, resolve conflicts, and deal with change.
New institutional arrangements are needed as an adjunct to programs to ex-
pand food supplies in developing countries. These are needed both in and out of
the advancing agriculture to establish forward and backward linkages to the non-
agricultural sector and to provide for efficient reallocation of resources. Failure
to provide these needed economic and social institutions at all can result in failure
of the food expansion program. Failure to provide these institutions appropriate-
ly can result in an undesirable inequality in the distribution of the benefits of the
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