Introduction:

Economic development is a process by which a population increases the efficiency with which it
provides desired goods and services, thereby increasing per capita levels of living and general
well being. The process is dynamic one involving constant change in structure & procedures of
the economy. In relatively high income countries where large and complex administrative
structure and a high rate of capital formation are more readily available, growth tends to proceed
more rapidly than in low income country. Nearly one third of the worlds population lives in
nations in which average annual per capita income over $500. These nations the prosperous
nations of the world lie largely in Europe, North America & Oceania. In Asia and in part of
Africa, China & India are large countries population over 700 and 450 million, including over
one third of the world total population.
Although Bangladesh is on course for Middle Income Country status by 2021, agriculture
remains the largest employer in the country by far; and 47.5% of the population is directly
employed in agriculture and around 70% depends on agriculture in one form or another for their
livelihood. Agriculture is the source of food for people through crops, livestock, fisheries; the
source of raw materials for industry, of timber for construction; and a generator of foreign
exchange for the country through the export of agricultural commodities, whether raw or
processed. It is the motor of the development of the agro-industrial sector including food
processing, input production and marketing, and related services. According to the HIES (2010)
35.2% and 21.1% of the population in rural areas lives below upper and lower poverty line
respectively.
During the fiscal year 2012-13, the broad agriculture sector1 contributed 16.77% to the total
GDP. The contributions of crop, fishery, livestock and forestry subsectors in GDP were 9.49%,
3.68%, 1.84% and 1.76% respectively. The provisional estimates show that contribution of the
broad agriculture sector to GDP in 2013-14 would be 16.33% (BER 2014). Nearly three fifth of
the agricultural GDP comes from the crop sub-sector; the other contributors in order of
magnitude are fishery, livestock and forestry.

 The key Role of Agriculture in Economic Development:

1. In early stage of development 60% to 80% of the population is engaged in agriculture and
50% and more of national income is generated in agricultural sector.
2. Developing agriculture would be essentially one of mobilizing and increasing the efficiency of
vast quantity of agriculture resources.
3. Raising the level of living presuppose not only an increasing per capita demand for food but
also largely supply of other commodities.
4. Expansion of the nonagricultural sectors requires vast quantities of capital.
5. Agriculture must provide major increases in agricultural production as well as the significant
net contributions of other sectors of economy.

The Economic Transformation:

The Fact that the economies of the low-income countries of the world are predominantly
agricultural arises from;
a) The biological necessity of food intake to sustain human life,
b) The extremely low level of labor productivity in the agricultural sector of low-income
count-tries,
c) The lack of institutions and capital for creation of a substantial nonagricultural sector in
d)

low-income countries, and

The lack of specialization in production, with consequent production of many nonagricultural goods and services in what are statistically counted as farm households.

In contrast, hath-income countries have without exception a relatively small portion of their
population in the agricultural sector. That biological necessity forces low-income people to spend
most of their income on food; we see that a high-income society spends a large proportion of
total income on nonfood items. Engels observed this transformation in consumption patterns and
set forth his law that the higher the per capita income, the lower the proportion of income spent
on food. The dynamics of Engels Law are expressed in the behavior income elasticitys of
demand for nonfood commodities as incomes rise. The income causticity of demand for even in
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low-income countries is generally found to be less than. That is as incomes rise, the in-crease in
expenditure for food is less than proportionate to the increase in income.
The refection of these demand factors on production and employment patterns may be magnified
by the potential in agriculture for very rapid increase in the physical productivity of later and
other factors of production. An apparent exception to Engels Law arises as and more consumer
expenditure is directed to various services rendered along with producing food, such as
processing, packaging, and storing. The elect of relative change in consumption patterns on
production and occupational of the labor force may be modified by international specialization in
production and trade.
Denmark, Canada, Australia, and New Zealand are all stereotyped as high-income countries with
highly efficient agricultures, specializing in agricultural production and deriving a high
proportion (38 to 89 per cent) of their foreign exchange earnings from export of agricultural
commodities. The general inabilities of a high-income country of achieve a high degree of
specialization in agricultural production lies in part with the nature of factor proportions in
production and with costs of transport. In addition agricultural commodities tend to be very
bulky, and many are highly perishable as well. Hence, even a substantial comparative advantage
in production of agricultural commodities may be overbalanced by high transport costs.
As a further factor, domestic strategic and political considerations lead many nations to follow
policies which protect at least a major segment of their agriculture form outside competition and
thereby reduce the degree of international specialization.
Further limiting specialization in agricultural production are special factors in the potential
agricultural specialist countries. This presentation should in no way taken as argument against
specialization and trade in agricultural commodities. The effort must be associated with a rapid
expansion of the nonfarm sector.

 Factors Affecting the Rate of Economic Transformation:

a) The proportion of the labor force initially in the agricultural sector,
b) the rate of growth of the total labor force, and
c) the rate o growth of nonfarm job opportunities
With a given rate of population growth, the higher the proportion of the labor force in the
agricultural sector, the greater must be the rate of growth in the nonagricultural sector in order to
bring about a decline in employment in the agricultural sector.
Indeed, rapid population growth may cause all the employment creating facility of
nonagricultural expansion to be used in simply absorbing a part of the increments to population.
Folks Droving has demonstrated that the rate at which the proportion of the labor force in
nonagricultural employment increases is given by the difference between the rates of growth of;
1. The total labor force and
2. The labor force in nonagricultural employment.
This contest is more sharply drawn by comparing the effect of the above assumptions on a nation
having 50 per cent of the labor force in nonagricultural employment. In the former case these
assumptions provide only a 0.6 percentage point addition to the proportion of nonagricultural
employments, while in the latter case the percentage point increment is 1.5. Thus it is clear that
in early stages of development a given rate of expansion of the nonagricultural sector has a
relatively small effect on the transformation as compared to the effect it would have at a letter
stage. Nations in an early stage of development are in the difficult position of Alice and the Red
Queen where they must run very rapidly indeed just to stand still.
An increase in the proportion of the labor force in the nonagricultural sector does not necessarily
mean that the absolute size absolute size of the agricultural labor force is decreasing. It does not
imply all growth in the labor force is absorbed in the nonagricultural sector.
We can calculate the rate of growth in nonagricultural employment required to absorb all the
additions in the labor force the requirements of a static agricultural labor force. This calculation
is made by division of the rate of growth of the total labor force by the proportion of the
population in nonagricultural employment.
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g = a / b, Where,
g = rate of growth of nonagricultural employment require by absolutely of labor force.
a = rate of growth of labor force
As development proceeds, the rate of population growth may not remain so hath, which in
lessens the absorption problem, and the capital formation rate accelerates, allowing a more rapid
rate of growth and larger relative size of growth and larger relative size of the nonagricultural
sector.
The growth in the agricultural labor force (z) is given by the following formula:
Where: z = (x-ay) / (1-a)
x = Rate of growth of the total labor force
y = Rate of growth of the nonagricultural labor force
a = Per cent of the population in nonagricultural employment
From these calculations it can be seen that in early stages of development, when the proportion
of the labor force in agriculture is large, it is unlikely that the nonagricultural sector can expand
rapidly enough to absorb all the population growth.
In the United States, it has only after World War I that the absolute size of the agricultural labor
force has declined.

Agriculture and the Economic Transformation:

The pace of the economic transformation has important implications to both the role and the
strategy of agricultural development. On the one hand, the pace of the transformation is a key
determinant of the size and rate of change of the agricultural labor force, which in turn affects
labor and capital productivity and incomes in agriculture. On the other hand, the extent and rate
of transformation and the specific nature of the agricultural sector determine the extent to which
economic development depends on capital formation in agriculture and transfers of capital from
agriculture to other sectors. Indeed, there are probably significant external economics and
economies of scale in the nonagricultural sector. Hence, as successive investments in the
nonagricultural sector reinforce each other, it is quite likely that production expands more than
proportionately with increase capital and labor input.
The balance of force is still likely to favor a concentration of investment in the nonagricultural
sector. If at the other hand, the marginal productivity of labor and capital can be raised in the
agricultural sector though technological change, it may be economic to invest significant
quantities of capital in the agricultural sector itself. These three classes of situations will be
discussed briefly in the three succeeding sub sections of this chapter. Much 6 th the remainder of
the book will be devoted to detailed consideration of the factors which influence the productivity
of labor input and capital investment in agriculture within the context of both static and dynamic
technology.

Declining Productivity Accompanying

I.

An Increased labor force in Agriculture:

When labor used for new land settlements and intensification of land use is accompanied by
capital, the productivity of labor is likely to decline with successive increments unless there is
concurrent technological change.
Here, as in similar situations in many other countries of Asia, Africa, and Latin America incomes
in agriculture are bound to decline as the absolute size of the agricultural labor force continues to
increase. Thus, with his change in generations the income of the sons and their families will be
much less than that of the previous generation.

As indicated previously, this letter possibility is not likely to occur until quite late in the
development process. The importance and urgency of the economic transformation to the
economic welfare of rural people in the preceding circumstances is clear. The situation also has
important implications to the processes of agricultural development. Lower incomes may lessen
the availability of capital for investment in agricultural innovation. Lower incomes may also
decrease the willingness of farmers to take risk, by placing them closer to the margin of
subsistence, thereby increasing the penalty for errors in innovation.
In so far as intensification give the greatest returns to increased labor input in agriculture, we can
draw implication to policy regarding farm size in early stages of economic development. It is
important, however, to be cautious in generalizing from this one fact of the set of factors
influencing polity. A system of ceilings on the maximum size of farm such as in in practice of
contemplated in a number of countries has much to recommend it from an egalitarian point of
view. But unless a vast new area is brought into production, setting a farm size larger than the
current average can rarely be justified by the expectation that the overall main land ratio in the
country will improve.
Economic development and its influence on the main land ratio also has important implications
for mechanization policy. In early stage of development, lack of capital may retard development
of nonagricultural employment. The investment of capital in agriculture will in itself directly
retard industrial development and thereby cause labor to back up in agriculture. Such machinery
requires scarce foreign exchange or industrial capital; both of these could also be used to expand
the nonfarm sector of the economy. Even the use of such forms of capital against alternative
investment in nonfarm jobs and income.
The paces of the economic transformation also influence agricultural credit policy. Finally, it
should be clear that the role of agriculture in capital formation will tend to change as the
economic transformation proceeds. Initially it may be to agricultures advantage to provide an
outflow of capital to other sectors. As economic transformation proceeds, the nonagricultural
sector will increasingly be able to generate its capital needs through taxation and retention of
profits. It is then that agriculture may encounter very substantial problems of financing and credit
and may increasingly attempt to tap central money markets and draw upon the nonagricultural
sector for capital.
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II.

Stable productivity with an increase labor force in agriculture:

As long as this is possible incomes may be maintained without an economic transformation. It

would be well to prepare for this time early by laying the groundwork for the economic
transformation.
A clear allocation question is raised if expansion of the land area and maintenance of
productivity and incomes in agriculture depend on a large capital input in the form of large scale
resettlement schemes and irrigation project. The critical question with such forms of investment
is whether they provide higher returns in agriculture than in other sector of the economy. Later
chapters will indicate that within the context of a traditional agriculture without technological
change such investments are unlikely to provide as high returns in agriculture as in other sectors
of the economy. Also though there are contrary expectations, including the current developments
in connection with the Aswan dam in the United Arab Republic, large-scale schemes usually
absorb an extremely small fraction of total population growth in low-income countries.

III.

Rising Labor Productivity-Technology change in Agriculture:

Technological change in agriculture of the yield increasing type usually increases the returns to
increments of labor. In such cases it will certainly be desirable in the long run no make such
allocations of capital to agricultural development even at the expense of slowing the economic
transformation. Much of Part III of this book is devoted to description an analysis of this
circumstance. Even with rapid technological change in agriculture, however, the point will
eventually be reached at which the economic transformation must proceed. Improvement for
landless for landless laborers, and for farmers in disadvantaged regions require expanded
nonfarm job opportunities if they are to share in economic development.

IV.

labor mobility and the uneven progress of the economic transformation:

In early ages of development, the rate of capital formation is insufficient even to absorb total
population growth. Nonfarm wages will normally be more attractive than farm wage, because
nonfarm production processes include a large capital component and operate at levels of
efficiency such that raising wage rates requires only a modest increase in total cost.
Certainly labor mobility to urban centers will be more rapid from some areas than from other,
and patterns of migration will affect agricultural development. Probably the most important
factor affecting the pattern of migration is location. Migration is easier for a person within
commuting range of the nonfarm job, since we can remain at home while trying the job. The
penalty in the risk from losing his job is slight, for if he has not change his residence, he has not
committed himself heavily to the nonfarm job. The extent to which the location factor is
important to migration will, of course, very with the cultural and societal structure. We find
unevenness in the economic transformation as a result of factors which make migration easier
from area near urban growth points.
Thus, typically in low-income countries agricultural wage rate run 25 to 50 per cent higher near
urban areas than in more isolated situations. Agricultural activity close to urban development
may be disrupted, as land use patterns begin to develop in response to urban encroachment of the
land area. Localized mechanization for this reason alone is generally not sensible for the
economy as a whole and argues for effort to facilitate dispersion of industry or reduction of
frictions to migration.
Although there are many economies in concentrating industry, there are industries for which such
concentration is of less importance, particularly many which produce light consumer goods.
There is much to be said for developing a widespread net of major market towns as centers
which produce these goods, service as growing points for agricultural development.

 Increasing rural welfare:

The ultimate objective of agricultural development is increased welfare generally and increased
rural welfare specifically. Although individual concepts of welfare will certainly vary, there are
certain general tendencies and acted upon in regard to general development policy. These
concepts might most usefully be divided into;

Those aspects of welfare which are commanded by, and therefore measured by,

individual monetary income

Those which are also reasonably well measured by the money yardstick, but which are

not readily commanded by individual action in regard to expenditure of income

Those less tangible aspects which are not readily measured by a money yardstick.

Although some of these features are not strictly economic, they have economic implications
since they may substitute for those aspects of welfare which are entirely subject to monetary
measurement.

INCREASED CONSUMPTION OF GOODS AND SERVICES:

A useful distinction is made between those which can be produced directly with the familys own
resources and those which require enlarged entrance with the familys own resources and those
which require enlarged entrance into the market economy. Improving welfare through increased
production for direct consumption such as producing food for home consumption. The cost to
society of such improvement welfare is low-that is the gross gain in welfare is largely a net gain
as well.
Income elasticitys of demand for food are generally high in rural areas, indicating a strong
desire to consume food if the economic means can be provided. Thus a program which increases
agricultural production will almost certainly have a direct impact on rural welfare by, in effect,
simultaneously increasing the availability of food and incomes. When the recipients do not
recognize the increase in welfare, they often do not accept or help to implement the necessary
activities, and the program fails.

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Increased consumption of goods form the market economy has several advantages. First it
provides the basis for increase their marketings of agricultural commodities.
Increased consumption of those good and services which are the product of collective or public
action may also be divided into those which require added entrance into the market economy and
those which require added entrance into the market economy and those which use local
underemployed resources in kind. The favorable and unfavorable features of expanded entry into
a market economy which were stated in regard to individually financed consumption apply at the
public level as well.

CHANGED ATTITUDES:
A change in attitude is an important but often neglected aspect of increased welfare. And finally,
the development process itself may provide a sense of progress and change which gives a feeling
of optimism concerning the future. Even though such a sense of optimism may reflect
anticipation rather than actually experienced improvement, its welfare influence may still be
substantial.
These are also changes which grow out of the development process itself rather than conflict
with the investment requirements of longer-term development goals. If there tangible feature are
to be fully exploited and developed the local people must believe that the general people are
generally sensible and workable.

It is probably necessary that there be local participation in the formulation and execution
of local plans.

If development plans are imposed by outside authority, they do not provide the sense of
individual control of destiny, the shaper delineation of goals, and the increased application of
reason to life indicated above. In addition, if development plans are imposed from outside there
is less likely to be local belief in their success.

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i.

INCREASING RURAL WELFARE THOUGH INCOME TRANSFERS:

A generally accepted stereotype of extreme poverty and deprivation in the rural areas of lowincome countries adds urgency to arguments for improved rural welfare and may even add
credibility to measures which involve transfer of income toward the rural sector.
Income answers through price support, subsidization, and direct payments have other high
income countries. Income transfers are not appropriate meanest of directly increasing rural
welfare in low-income countries. These devices may of course have merit through their indirect
influence on welfare through incentives and production.
In other words, in high-income countries the welfare of agriculturalists has been damaged by the
very technological progress which has served society in general so well. In the typical lowincome country agriculture is not being damaged by these circumstances.
ii.

AGRICULTURE DEVELOPMENT AND INCOME DISTRIBUTION:

In the long run this is a favorable feature of agricultural development programs. However,
agricultural development programs will have at best indirect welfare effect on two groups of the
rural population. In aggregate these groups will often be important. The landless laborer group
will feel benefits of agricultural development only insofar as technological change creates greater
employment opportunities for hired labor.
Farmers who are not in a position to make profitable application of technological change will
experience little direct benefit of agricultural development. These farmers are likely to have
substantial areas of land which the soils or other aspects of the physical environment are not
suitable to the new available technology. For them, the development of nonfarm job
opportunities is likely to be necessary conditions of improved welfare.
iii.

INTERRELATIONS BETWEEN PROGRAMS FOR INCREASED PRODUC

TION AND WELFARE:

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In the short run conflict may arise in regard to allocations between consumption and investment.
In contrast the relationship between consumption and incentives and between consumption and
market expansion may prove complementary.

Consumption and Investment:

There is therefore ground for substantial short term conflict between immediate improvement in
welfare and the investment necessary for increased production, same resources required for
investment.
Increased rural welfare derived from consumption of manufactured goods and service normally
requires diversion of scare foreign exchange and domestic manufacturing facilities from capital
formation. Such consumption may be justified by the urgency of immediate welfare
improvement, by the inadequacy of other means of increasing welfare, and by direct production
effect through increased incentives. However, economic development will be facilitated to the
extent the substitute methods of increasing welfare can be found.
Rural welfare may be increased through increased consumption of items produced largely
through increased utilization of underemployed resource. Programs which emphasize the use of
such consumption goods should logically from a part of plans for rural development. Such
efforts will of course, be useless if they are not consistent with the existing or developing desires
of the people themselves.
Perhaps most fortunate for effort to minimize conflict in rural development is the direct
satisfaction achieved from certain forms for investment. This form of satisfaction my simply be
in anticipation of the eventual benefits of higher earning power which will come to the family
through education of its children of it may be a more direct satisfaction from value attached to
education for its own sake.
Improved public health is another obvious example of a substitute for consumption goods or
services in providing a sense of improve welfare. Improved transportation and communication
links may be considered primarily as production inputs, but form which, sometimes directly or
through small additional expenditure on increased capacity, a substantial consumption value can
be immediately derived.
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The very process of development, with its gradual transformation of the economy, can effect a
sense of control of ones destiny and accompanying optimism concerning the future which is a
much less tangible, but nevertheless important, form of improved welfare.

Consumption and Incentives

Although increased consumption does conflict with investment, the opportunity for increased
consumption many provide incentives which result in mobilization of underemployed resources
for increased production and income. If the latter condition is not met, the effect of introducing
attractive new consumer goods will simply be to substitute those for old forms of consumption
with no effect on production.
Here a careful balance must be struck between the opportunity cost in the form of decreased
investment and the production effect of increased incentives. The high income causticities of
demand for food products in rural area may, however, be somewhat illusory. They may reflect
not so much strong drives and incentives to acquire more food as very weak drives for other
consumer goods due to their relative unavailability.

Consumption and Market Expansion:

The implicit assumption of the preceding discussion has been that the critical problem in
accelerating the long-term rate of growth of production. Eventually, however, through expansion
of the nonfarm sector the production of consumer goods will be rapidly increased. If that market
is not tapped production of consumer goods is likely to remain at small scale and high cost.

Although the rural market tends to be large in terms of number, the average purchasing

power of per person will be lower than the urban market.

Certain features of rural environment itself may cause somewhat different consumption
patterns. and needs , although one must be careful not to generalized too closely from
excising rural consumption pattern

Welfare implication to development policy:

Welfare measure in three categories:

14

Those which are fully consistent , that is , no conflicting, with long term development.
Those which re only slightly in conflict with longer development
Those which are in sharp conflict with development.

Conclusion:
There are three objectives of agricultural development such as;
1. To provide food and fiber for an expanding population with raising purchasing power.
2. To provide capital including foreign exchange for economic transformation
3. To provide direct increase in rural welfare
Additional contribution to development from the agricultural sector are labor force for expanding
industrial sectors and a market for the output of consumer goods and production supplies from
the expanding industrial sectors. But the problem of agricultural development is thus not one of
meeting food crises but one of contributing to growth I income so that people may live better,
broaden their horizons and broaden their area of choice.
With the same objectives the optimal development program will differ with physical, economic,
cultural and political environment of the agriculture itself. Thus although we can generalize
about the nature of problems and certain types of relationships, we must be very careful in
generating concerning the prcis pattern of agricultural development.

15