THE ROLE OF AGRICULTURAL DEVELOPMENT IN THE EVOLUTION OF EMERGING STATES
Jonna P. Estudillo, Professor (National Graduate Institute for Policy Studies)
Emerging states are developing countries that are rapidly growing and speedily gaining a rising share of the world economy. Existing knowledge remains scanty on the underlying mechanisms behind the evolution of emerging states. Evolution in this essay means sustained household income growth and poverty reduction. Estudillo, Cureg and Otsuka (2017) found that modern rice technology is a necessary condition in the evolution of emerging states in Southeast Asia such as the Philippines, Vietnam and Myanmar. Here, I present the case of Central Luzon in the Philippines, which was the frontrunner in the adoption of modern rice technology in Southeast Asia, and currently, one of the most rapidly growing regions in the country.
The first modern rice variety (IR8) was released in Central Luzon in November 1966 triggering the so-called Green Revolution in Asia. Rice yield rose because of the spread of modern rice seeds along with high application of fertilizer. The implementation of land reform, which coincided with the Green Revolution, enabled the farmers to internalize the gains from the new technology. Under the land reform law, landholdings of more than seven hectares were to be purchased by the government and to be sold out to individual tenants. Tenants would amortize for the value of the land over a fifteen-year period. Sharecroppers on holdings of less than seven hectares were to be converted to leaseholders, paying fixed rents every cropping season.
Since the implementation of the land reform program coincided with yield growth, the amortization fees and leasehold rents prescribed by the law fell below the prevailing rental value of land, creating an economic rent that accrued to the land reform beneficiaries. Indeed, according to Otsuka (1991), the successful implementation of land reform program in the Philippines is because of the heightened economic interest of tenants in land reform arising from divergence of rental value of land from leasehold rent and amortization fees prescribed by the land reform law.
The Green Revolution and simultaneous implementation of land reform led to a rise in farm income of the land reform beneficiaries. Meanwhile, rising wages in the newly industrializing economies in East Asia (Singapore, Taiwan, Hongkong and Korea) induced the outsourcing and delocalization of labor-intensive production processes to Southeast Asia including the Philippines, creating jobs for the skilled and semi-skilled workers and an opportunity for profitable investments in human capital. Farmers used farm income to finance investments in schooling of their children, who upon receiving higher education, migrated out of the villages to small towns, cities, and overseas (Estudillo, Sawada and Otsuka, 2009). Nonfarm wage income and remittances became the main contributor to sustained household income growth and poverty reduction. In brief, the case of Central Luzon illustrates that to stimulate the development of an economy, it is necessary to develop agriculture first during its early stage of development.
Estudillo, J.P., Cureg, E. F. and Otsuka, K. (2017) “Transformation of Rural Economies in Asia and Africa,” Ch.12 in Sugihara, K. and Otsuka, K. (Eds) “Transition from the Periphery to the Emerging State” (ESP Volume 2).
Estudillo, J.P., Sawada, Y., and Otsuka, K. (2009) “Income dynamics, schooling investment, and poverty reduction in Philippine villages, 1985-2004″ in K. Otsuka, J. Estudillo and Y. Sawada (eds) Rural Poverty and Income Dynamics in Asia and Africa, London and New York: Routledge Taylor and Francis Group.
Otsuka, K. (1991) “Determinants and consequences of land reform implementation in the Philippines,” Journal of Development Economics 35(2): 339-355.
 This essay draws from Estudillo, Cureg and Otsuka (2017).