william@afpconsulting-burke.com

Description:

The vertical axis is agricultural TFP, or Total Factor Productivity (source: ERS) where the base for each country is 100 in 1970. For example, if a country's TFP is 200 in a given year, then the sum productivity of agricultural inputs that year is twice as great as it was in the same country in 1970. The horizontal axis is the log of Gross Domestic Product (GDP) per capita, measured in 2010 US dollars (source: FAO) The size of each bubble is that year's gross value of agricultural value added (GVA) as a share of GDP (source: FAO). The larger the bubble, the more important agriculture is to the country. To give a sense of scale, China's GVA share is 60.1% in 1970 and 6.9% in 2016. The US changes from 2.7% to 1.5% over the same period. The US is blue, countries in Asia are red, and African countries are green. The opaque green circles without trails are all the other countries in sub-Saharan Africa.

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Three points to take away:

1) As countries become wealthier (move right) the agricultural value added as a share of GDP goes down (bubbles get smaller). This is the long established relationship that defines structural transformation. However;

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2) As countries get wealthier and agriculture's share of GDP decreases, in most cases, agricultural productivity increases. China and Thailand are great examples of these first two points (bubbles shrink as they move up and to the right). After some sputtering, we also see this starting in a number of African countries. I've highlighted Ghana and Ethiopia. Also worth noting, we still see this happening in the US, the quintessential "developed" economy.

 

3) Equatorial Guinea is highlighted as the exception that shows how rare it is to achieve growth in wealth (moving right) without increasing agricultural productivity (without moving up) and by raising GDP outside of agriculture (shrinking the bubble). What makes Equatorial Guinea fairly unique is the discovery of offshore oil deposits in 1995.