Modernization of Agriculture and Long-Term Growth

Dennis Yang, Chinese University of Hong Kong

This paper develops a two-sector model that illuminates the role of agricultural modernization in the transition from stagnation to growth. When agriculture relies on traditional technology, industrial development reduces the relative price of industrial products, but has limited effect on per capita income because most labor must stay in farming. Growth is not sustainable until this relative price drops below a certain threshold, inducing farmers to adopt modern technology that uses industry-supplied inputs. Once agricultural modernization begins, per capita income breaks from stasis to modern growth. Our calibrated model accounts well for the experiences of the industrial revolution in England.