The Economic Transformation

Abstract

The economic transformation is the overriding feature of economic growth in low-and middle-income countries. The transformation is from a predominantly rural and agricultural nation to one that is predominantly urban with urban industry and services dominating the economy. It is accompanied by a demo-graphic transition. The population growth rate first accelerates then slows and eventually declines. Health and life expectancy improve greatly. In low-income countries rapid growth in the large agricultural sector has a dominant impact on the overall growth rate, the decline in poverty, and the speed of economic transformation. In middle-income countries rapid growth in a now relatively smaller agriculture continues to have a substantial impact on the overall growth rate but is still dominant in the decline in poverty. The focus on growth, employment, and poverty is on per capita levels and hence changes in population growth rates are important. The demographic transition describes the changes in death rates, birth rates, and population growth that interact with the economic transformation. This chapter has two components: First, discussion of the demographic transition that determines population growth rates and hence is central to per capita changes in income and employment. Second, a description of the variables that determine the extent of agriculture's impact on economic transformation, employment growth, and poverty reduction. That leads to Chap. 3 that provides numerical estimates, under various conditions, of the impact of alternative rates of agricultural growth on GDP, employment growth rates, and food security of low-income rural families. THE DEMOGRAPHIC TRANSITION The demographic transition is the extraordinary evolution of population growth from slow growth, with high death rates and birth rates and periodic fluctuations in death rates, to rapid population growth as death rates decline far faster than 17 © The Author(s) 2017 J.W. Mellor, Agricultural Development and Economic Transformation, Palgrave Studies in Agricultural Economics and Food Policy, https://doi.org/10.1007/978-3-319-65259-7_2 birth rates, to slow and even declining population growth with low birth and death rates. Population growth changes from little being subject to human control to increasingly being subject to that control. Where there is underemployed labor, as is typical of poor rural areas in low-and many middle-income countries, a percentage point off the population growth rate is the near equivalent of a percentage point on the employment growth rate. Reducing the population growth rate by a percentage point, while being time consuming, requires little of the capital resources of growth, but does compete with agriculture for government institutional systems.