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Seeds of growth? Agricultural productivity and the transitional dynamics of the Ramsey model

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  • Xavier Irz
  • Terry Roe

Abstract

A two-sector Ramsey-type model of growth is developed to investigate the relationship between agricultural productivity and economy-wide growth. The framework takes into account the peculiarities of agriculture both in production (reliance on a fixed natural resource base) and in consumption (life-sustaining role and low income elasticity of food demand). The transitional dynamics of the model establish that when preferences respect Engel's law, the level and growth rate of agricultural productivity influence the speed of capital accumulation. A calibration exercise shows that a small difference in agricultural productivity has drastic implications for the rate and pattern of growth of the economy. Hence, low agricultural productivity can form a bottleneck limiting growth, because high food prices result in a low saving rate. Copyright 2005, Oxford University Press.

Suggested Citation

  • Xavier Irz & Terry Roe, 2005. "Seeds of growth? Agricultural productivity and the transitional dynamics of the Ramsey model," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 32(2), pages 143-165, June.
    • Handle: RePEc:oup:erevae:v:32:y:2005:i:2:p:143-165
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