Biased Technical Change in Agriculture and Industrial Growth

Abstract

AbstractThis paper presents a two‐sector growth model in which industrial accumulation is sensitive to the factor‐saving bias of technical change in agriculture. Agriculture features low factor substitutability and hidden unemployment and, in the baseline scenario, industrial growth is constrained by aggregate demand. Land‐saving innovations are then shown to raise rural employment, enlarge the domestic market for manufactures, and bolster industrial accumulation, in contrast to labor‐saving innovations. The baseline model and its extensions illuminate recent empirical studies which established that higher land yields boost industrial growth in developing countries, as well as accounts of the role of agricultural innovations in the industrialization of Japan, East Asia, and Latin America.