The Impact of Agricultural Growth on Employment in Rwanda 2002: A Three Sector Model

Tue, 02/17/2009 - 17:14 — amis_moderator

Agricultural Policy
Development Project
Research Report No. 14


Agricultural growth does generate substantial employment in agriculture. That is because the sector is so large, and despite the fact that agricultural growth must occur primarily through technological change. Land is important in agricultural production and the potentials for expanding the land area are typically very small. Only slow expansion occurs even under the best of circumstances. The technological change that relaxes the land constraint not only increases land productivity, but labor productivity as well. Hence, employment growth in agriculture grows much slower than production
(Rao, 1975). Agriculture’s impact on employment is much more through its indirect effects. The primary source of employment of low-income laborers is in the non-formal sector and the bulk of non-formal employment, in turn, is located in the rural sector.

 
This paper presents a three-sector mathematical model that is consistent with the results of earlier work that characterized the relationship between agriculture, the non-farm sector and economic and employment growth. It models the differential impact of acceleration in the agricultural growth rate
on GDP and the demand for labor. The paper first describes the employment and GDP composition of the urban and rural sectors and the tradable and non-tradable sub-sectors within each. Collapsing the two non-tradable sectors (urban and rural) into one leaves a computable three-sector model. The paper then presents data on the share of each factor used in each sector’s production as well as the average and marginal expenditure patterns of the recipients of the various factor shares. Focus is on differences in expenditure on the non-tradable sector.

 
The basic paper assumes a perfectly elastic supply of labor and, therefore, that there is no restraint from rising wages, and hence rising prices on growth of the non-tradable sector. That assumption is consistent with the full employment of labor, but also with the potential to increase the productivity of labor. The approach of the basic paper is static; in other words, it does not allow for simultaneity, or for transfer of resources from one sector to another.

 

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