Productivity growth and convergence in agriculture versus manufacturing

The belief that productivity growth rates differ substantially across sectors has had extremely important implications for policy. In many developing countries, the belief that total factor productivity (TFP) growth is higher in manufacturing appears to have contributed to strong policy biases against agriculture and toward manufacturing. One would expect that the widespread failure of this approach to development would have raised questions about the underlying assumption of relative productivity differences, but it appears that this was not always the case. Academic analysis of the problem, in particular, has frequently continued to use the Ricardian assumption of zero productivity growth in agriculture. Comparisons of productivity growth between agriculture and manufacturing are also instructive for policies on the allocation of research resources and on the definition of intellectual property rights. In agriculture, much of the research underlying the development of high-yielding varieties of rice and other crops was the result of a conscious policy choice to fund the development of such varieties and their adaptation to the particular environments of developing countries. In industry, direct public funding plays a relatively smaller, but not insignificant, role. In both sectors, important public policy issues arise in the definition and enforcement of intellectual property rights; because of the Trade-Related Intellectual Property Rights agreement reached under the Uruguay Round, these issues are now of much stronger international concern than was previously the case.