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Modernization of Agriculture and Long-Term Growth

  • Yang, Dennis T.

    ()

    (University of Virginia)

  • Zhu, Xiaodong

    ()

    (University of Toronto)

This paper develops a two-sector model that illuminates the role played by 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 a limited effect on per capita income because most labor has to remain in farming. Growth is not sustainable until this relative price drops below a certain threshold, thus inducing farmers to adopt modern technology that employs industry-supplied inputs. Once agricultural modernization begins, per capita income emerges from stasis and accelerates toward modern growth. Our calibrated model is largely consistent with the set of historical data we have compiled on the English economy, accounting well for the growth experience of England encompassing the Industrial Revolution.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5239.

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Length: 44 pages
Date of creation: Oct 2010
Date of revision:
Publication status: published in: Journal of Monetary Economics, 2013, 60 (3), 367–382
Handle: RePEc:iza:izadps:dp5239
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