Thomas L. Vollrath

The role of agriculture and its prerequisites in economic development: A vision for foreign development assistance

Abstract The aim of this paper is to establish a vision for foreign development assistance based upon the evolution of thought and empirical evidence found in the development literature. The paper spotlights the agricultural-led approach. The empirical record shows that agricultural growth had a more pronounced impact on increases in developing-country income than did growth in the nonagricultural sector. The reason for the differential impact is that developing countries focusing on agricultural development experienced more broad-based income growth and increases in the demand for domestically-produced goods; whereas the developing countries promoting rapid industrialization experienced narrow-based income growth, with a demand pattern oriented toward nonfood and capital-intensive products. A precondition for agriculture to play its proper role is the existence of a conducive environment in which private enterprise can flourish. Developing-country governments need to assume responsibility for the creation and maintenance of essential institutions. Government investments are required in education, infrastructure, and other areas where the commercial market is not capable of delivering critical services. Finally, governments must responsibly manage the macroeconomy, pursuing sustainable pricing policies and fiscal and monetary policies that are consistent with real equilibrium exchange rates.