By Pranav K Desai
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Extra resources for Agricultural Economics
Average productivity APP = MP/OP The institutionally determined real wage level is set near subsistence and is related to the average productivity of agricultural labour APPL • This is called the constant institutional wage (CIW). From Fig. bellow, the portion of redundant labour force in the economy = PQ. If out of this redundant labour force, PY is allocated to the industrial sector, the remaining labour Agricultural Economics 30 force in agricultural sector produces an output of YZ units, while at constant institutional wage, its total real income is represented by XY units.
Thus, agriculture makes a market contribution to economic growth by (1) "Purchasing some production items from other sectors at home or abroad; (2) Selling some of its products not only to pay for the purchases listed under (1) but also to purchase consumer goods from other sectors or from abroad or to dispose of the product in any way other than consumption within the sector. In all these ways, agriculture makes it feasible for other sectors to emerge and grow and for international flows to develop; just as these other sectors and the international flows make it feasible for the agricultural sector to operate more efficiently as a producing unit and use its product more effectively as a consuming unit".
In the absence of such data we can only speculate on such magnitudes. However, the share of domestic savings originating in agriculture is function of (i) the share of agriculture in total income, (ii) the lower level of real income in agriculture than in the total sectors, and, (iii) the relative propensity to save of the agricultural population and of other groups in the economy. Nurkse has referred to another way through which agriculture can provide capital to non-agricultural sectors. Another way of transferring resources from agricultural to non-agricultural sectors is by the government turning the terms of trade against agriculture by imposing price controls on agricultural products.