Read chapters 9 and 14

1
AGEC 340 International Economic
DevelopmentWeek 8 March 3 8 Is Growth
Sustainable?

• Read chapters 9 and 14
• Ch. 14 Input and Credit Markets (today)
• Ch. 9 Resource Use and Sustainability (Weds.)
• Quiz 3 -- results and score totals to date
• Ex. 3 -- due on Thurs.

2
Resource Use and Sustainability

• So far in AGEC 340 weve seen
• Part I basic facts
• economic growth from low to high production
  consumption
• demographic transition from large to small
  families
• structural transformation from farm to nonfarm
  activity
• Part II microeconomics
• if everyone already optimizes input use and
  production
• productivity grows only through new technology
• But new technology is limited by natural
  resources
• natural in that supply is fixed (land, water,
  air etc.)
• cannot make more of them, even if their value
  rises
• natural in that supply is not under individual
  control
• ownership is collective, so use is less likely to
  be optimized

3
Economic growth involves switching from natural
to man-made resources
The textbook story, from chapter 14
BOX 14-1 INPUT USE AND AGRICULTURAL OUTPUT IN
INDIA
acreage expansion ends
yield increase takes over
fueled by control of water and fertilizer
and made possible by new plant genetics
4
The race between people and land, so far
Trends in farm size and yields by region,
1961-1990
Diagonals have same farm size (ha/worker)
Y axis shows yield (output per hectare)
X axis shows earnings (output/worker)
5
so why no green revolution in Africa?
Slide 5
6
Fertilizer use is not converging to world levels,
as it did in Asia
7
One reason for Africas lag is that its soils and
moisture are unusually difficult
Selected Soil Fertility Constraints in
Agriculture (as percent of agricultural area)
Note Constraints characterized using the
Fertility Capability Classification (Sanchez et
al., Smith). Source Stanley Wood (2002), IFPRI
file data.
8
Africa gets relatively little rainfall
9
and Africas rainfall may have worsened in the
1960-1985 period
Source S. Barrios, L. Bertinelli, and E. Strobl
(2006), Climate Change and Economic Growth
Evidence from Africa. University of Luxebourg
CREA.
10
But crucially, most African farmers still use old
seed types new seeds are coming out now
Source Calculated from data in Evenson and
Gollin, 2003.
11
And a key reason for that is simply that Africa
has had less local research
Source Calculated from IFPRI and FAOStat file
data
12
Africa faces unusually severe population pressures
13
Rural population growth is especially important
14
Changing age structure imposes another burden
15
To respond to farmers needs, crop improvement
involves multiple innovations
Genetic improvement
Agronomic improvement
(by scientists, using controlled trials)
(by farmers, using land labor)
16
New techniques to manage soils and conserve
moisture are spreading
traditional flat planting
labor-intensive Zai microcatchments
For these fields, the workers are
Slide 16
17
Resource Use and Sustainability

• The information weve seen so far implies that
  farmers are already doing the best they can --
  and yet observers may feel that some farmers
  overuse certain resources.
• For example, in Indiana as in many places around
  the world, some water supplies are affected by
  runoff of farmers fertilizers, herbicides or
  pesticides. Do farmers use too much of these
  inputs? To answer, we must ask how this
  information enters our picture...

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How do inputs enter farmers optimal choices?
Qty. of corn (bu/acre)
Qty. of corn (bu/acre)
Qty. of labor (hours/acre)
iso-profit (slopePf/Pc)
iso-revenue (-Pb/Pc)
iso-cost (slope-Ph/Pm)
Qty. of fert. (lbs/acre)
Qty. of beans (bushels/acre)
Qty. of herbicide (liters/acre)
19
To include runoff costs of input use, we would
add water users costs to prices paid by farmers
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
slope (Pfrunoff)/Pc
slope Pf/Pc
slope -(Phrunoff/Pl)
runoff costs added to farmers cost
slope -Ph/Pl
Qty. of fertilizer (lbs/acre)
Qty. of herbicide (liters/acre)
20
so that from the whole societys point of view,
a lower level of input use would be optimal
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
slope (Pfrunoff)/Pc
slope Pf/Pc
slope -(Phrunoff/Pl)
slope -Ph/Pl
new optimum from adding runoff costs to farmers
cost lower inputs, lower outputs, more work for
farmers.
Qty. of fert. (lbs/acre)
Qty. of herbicide (liters/acre)
21
How can the country movefrom point A to point B?
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
slopesocial costs slopefarmers costs
A
optimum at social costs
B
B
optimum at farmers costs
A
Reductions in input use to take account of
off-farm costs to drinking water
22
To reach the social optimum, wed need either a
tax
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
tax on input use to induce change
A
B
B
A
23
To reach the social optimum, wed need either a
tax, or a regulation
Qty. of corn (bu/acre)
Qty. of labor (hrs/acre)
tax on input use to induce change
A
B
B
A
rules specifying new input use levels
24
Optimal Environmental Policy What do we need to
know?

• To set optimal taxes, wed need to know the cost
  per unit of the runoff to water users.
• To set optimal rules, wed need to know the new
  optimal input-use level.
• Using taxes is likely to give closer-to-optimal
  input use, but
• Imposing taxes may be politically harder than
  specifying rules, so
• Most governments use rules instead of taxes.