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I read this article earlier, and the "experts" there say:

"The incidence of poverty is very high in agriculture because of its low productivity."

"The incidence of poverty is very high in agriculture because of its relatively slow growth."

But why do they say that? How about you? What do you think is the cause? To me, they keep saying that:

"[T]he share of agriculture in GDP, and not the demand for agriculture per se, which declines as income per capita increases"

But why would you want to be more productive/produce more goods when people in general are going to have a pretty much similar demand for the product ('cause it says there that demand for agri products don't necessarily decline)?

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  • $\begingroup$ A point additional to the good ones made below is that the marginal product of labour is very close to zero in rural areas due to mechanisation. $\endgroup$ – Jamzy Aug 18 '15 at 23:49
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Well I think that agriculture poverty is there because farmer can't store its product and sell that when prices are good as his product is perishable. With this he has to remain busy throughout the year either harvesting or in production and has no control over markets.

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  • $\begingroup$ interesting point, could you provide a source behind this intuition? $\endgroup$ – Jamzy Aug 18 '15 at 0:10
  • $\begingroup$ Storage, while technically possible for other goods, is quite expensive and doesn't happen in such amount to appear to be relevant. $\endgroup$ – FooBar Aug 18 '15 at 5:59
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Is what the quoted experts say so unreasonable?

Can't productivity explain poverty? Take profits under a very simplistic and linear production function:

$$ \pi = AL - wL = (A-w)L$$

Assume that $w$ equalizes between sectors, and hence is given. Then, the larger the productivity $A$, the larger the profits made in a certain sector. This is not to say it is the unique reason, but it certainly makes sense to me.

Two Caveats

Now Econ 101 teaches us that there is free entry and $\pi$ is zero anyways. However, there are several frictions imaginable where that is certainly not true. Think for example about Search&Matching environments pioneered by Diamonds-Mortensen-Pissarides, where the worker gains a surplus above his marginal productivity.

Second, here, the production function is linear. Again, by Econ 101, A linear production function typically implies zero production, or infinitely many. And again, there is a true spirit behind it, which we don't have to take too serious. For one, this only necessarily holds under a frictionless environment (see above). Ultimately, the spirit of the analysis carries through with a nonlinear production function, but makes the disposition unnecessarily intractable.

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It made me think about Lewis Model. In this model, the main idea is that if the agricultural sector is highly productive, there will be a transition of labor from agricultural sector to industrial sector, which will probably produce more value added products.

With maintaining at least the same quantity of subsistance good, the industrial sector will develop.

https://en.wikipedia.org/wiki/Dual-sector_model

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