IDEAS home Printed from
   My bibliography  Save this paper

Testing the induced innovation hypothesis in South African agriculture (an error correction approach)


  • Thirtle, Colin
  • Townsend, Robert
  • van Zyl, Johan


The authors investigate whether factor prices matter in agricultural production and in the selection of production technology. Each stage of the analysis corroborates the inducement hypothesis, which implies that factor prices do matter in agricultural production and in the selection of production technology. The empirical results also suggest that observed rates and biases of technological change are influenced by average farm size, by spending on research and extension, and by favorable tax and interest-rate policies. In South Africa, the authors contend, more attention should be focused on the technological needs of small-scale farmers. The lobbying power of the large commercial farmers, combined with policies followed under apartheid, must have influenced the allocation of research and development funds between labor- and land-saving technical change. This will have distorted the technological bias toward labor saving technical change, which is hardly appropriate for a labor-surplus economy in which small farmers in the former homelands face a chronic scarcity of land. These results show that factor prices do matter in agricultural production and the selection of production technology. And there seems to be merit to the World Bank's usual policy prescription - structural adjustment and market liberalization - for economies in which prices are controlled and distorted. They investigate the role of factor prices by applying cointegration techniques to a model of induced innovation based on the two-stage constant elasticity of substitution production function. This approach results in direct tests of the inducement hypothesis, which are applied to data for South African agriculture for the period 1947-92. They check the time series properties of the variables, establish cointegration, and construct an error correction model (ECM) that allows factor substitution to be separated from technological change. Finally, they subject the ECM formulation to tests of causality, which show that the factor price ratios induce the factor saving biases of technological change.

Suggested Citation

  • Thirtle, Colin & Townsend, Robert & van Zyl, Johan, 1995. "Testing the induced innovation hypothesis in South African agriculture (an error correction approach)," Policy Research Working Paper Series 1547, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1547

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Binswanger, Hans P, 1974. "A Microeconomic Approach to Induced Innovation," Economic Journal, Royal Economic Society, vol. 84(336), pages 940-958, December.
    2. J. Stephen Clark & Curtis E. Youngblood, 1992. "Estimating Duality Models with Biased Technical Change: A Time Series Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(2), pages 353-360.
    3. Hicks, John, 1977. "Economic Perspectives: Further Essays on Money and Growth," OUP Catalogue, Oxford University Press, number 9780198284079.
    4. McCain, Roger A, 1977. "The Characteristics of Optimum Inventions: An Isotech Approach," American Economic Review, American Economic Association, vol. 67(1), pages 365-369, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Farrington, John & Thirtle, Colin & Henderson, Simon, 1997. "Methodologies for monitoring and evaluating agricultural and natural resources research," Agricultural Systems, Elsevier, vol. 55(2), pages 273-300, October.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1547. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.