LIRNEasia has been engaged with the knowledge and information aspects of agriculture since 2006. There have been times when questions have been raised about whether this should continue to be a priority for us. But this summary of research on the cost of living in Africa (by extension, poor countries) published in the Economist suggests we were right to focus on agriculture.
Whereas Balassa and Samuelson divided economies into two (manufacturing and services), Mr Hassan divides economies into three, by also distinguishing agriculture. Like manufacturing, agricultural productivity can grow vigorously. But like services, this fresh farm output is sold locally, he assumes, which drives down prices. Thus when farm productivity rises, the poorest countries become both richer and cheaper.
The CGD researchers note an interesting corollary: manufacturing wages in Africa, though low, are higher than in Asian countries at similar levels of income. African workers need more dough to buy their daily bread.
If that is right, then cheaper food may boost manufacturing by making wages more competitive. From 18th-century Britain to 20th-century Asia, industrial revolutions are often preceded by agrarian ones. Poor countries must hope for a repeat.
Comments are closed.