Agriculture and long-run growth

In 1700, all economies were based very largely on agricultural production. The agricultural sector employed most of the workforce, consumed most of the capital inputs and provided most of the outputs in the economy. In some ways this is obvious. People in 1700 were much poorer than they are today but required similar levels of food intake, so food must have constituted a higher percentage of economic activity – whether measured from the production, consumption, or expenditure side of the national income identity. Hence at the onset of the Industrial Revolution in England, around 1770, food accounted for approximately 60 percent of the household budget, compared with just 10 percent in 2001 (Feinstein, 1998). But it is important to realise that agriculture additionally provided most of the raw materials for industrial production: fibres for cloth, animal skins for leather, and wood for building houses and ships and making the charcoal used in metal smelting. There was scarcely an economic activity that was not ultimately dependent on agricultural production – even down to the quill pens and ink used by clerks in the service industries.

The very large share of agriculture in economic activity has several important economic implications. First, the growth rates of agricultural output and productivity within each country were the primary determinants of overall growth rates in each country. Similarly, agricultural productivity differentials across countries were the primary determinants of overall productivity differentials across countries.