HIST363: Global Perspectives on Industrialization

Technological change is a very important determinant of both changes in resource dependence and economic growth and development. Unfortunately, it is relatively poorly understood because of the complexity of many of the processes that lead to technological change, and because of the problems involved in measuring technical change.

Much thinking on the role of technological change in promoting structural change has been confused by a failure to distinguish between open and closed economies. The oft-encountered argument that technical advance in agriculture promotes industrialization by freeing up resources formerly used in agriculture is, as pointed out by Matsuyama likely to be relevant only in a closed economy. In an open economy, technical change that increases productivity in agriculture, or any other sector, will generally increase the size of that sector by drawing additional resources into the sector because of induced increases in the profitability of production.

Assuming a relatively open economy, a key determinant of whether resources are likely to shift from agricultural and other resource-based products into manufactures and services is the relative rates of technical change. Many economists, including Matsuyama follow a tradition dating back to Adam Smith and assume that productivity growth in agriculture is very slow. However, more recent empirical studies suggest that the average rate of total factor productivity growth in agriculture has been higher than in manufacturing. This appears to represent a change from results for earlier periods surveyed by Syrquin, in which there was no consistent tendency for total factor productivity in agriculture to grow more rapidly than productivity in manufactures. This apparent change may reflect the substantial investments in international research and dissemination of rural technologies during recent decades.

Key results from the Bernard and Jones and the Martin and Mitra studies are presented in Table 5. The Bernard and Jones analysis is based on data from OECD countries over the period 1970 to 1987, while the Martin and Mitra study is based on data collected by Larson and Mundlak for 1966 to 1992. While this evidence is somewhat limited as a basis for judgement, further support for the proposition that agricultural TFP has been more rapid than that in manufacturing is provided by a number of single-country studies, including Jorgenson,

Gollop and Fraumeni. The Bernard and Jones estimate of a small, negative rate of TFP growth in mining is surprising given the manifestly rapid changes in the technology used for mining, and may reflect resource depletion in some OECD countries.

Table 5. Sectoral productivity growth, percent per year.

The apparently robust finding of relatively rapid technical change in agriculture suggests that the decline in developing countries' dependence on agricultural exports cannot simply be explained by higher rates of productivity growth in manufactures. This difference, alone, would seem to increase the importance of the other possible explanations of increased exports of manufactures from developing countries - Rybczynski effects and reductions in protection.

There is a possibility of a strong positive interaction between increased export orientation and productivity growth in manufacturing exports. This does not appear to result from the traditional anecdotal model in which exporters "learn by doing" or from their interactions with their foreign customers. Rather, recent studies suggest that the firms that choose to export generally have higher productivity and produce higher quality products when they begin exporting. In this situation, it becomes particularly important to have a policy environment that encourages entry of firms – whether new or old – into exporting activities.

Further, the productivity gains from entry can be compounded by the expansion of these firms, at the expense of less efficient firms, following entry. Finally, as noted in the discussion of technical change, the gains from technical change may be much greater when firms have the opportunity to expand than in cases where their market size is restricted.