Ethiopian Civil Service

University
Rural-Urban
Development
MDM5061

February 2024
Amanuel K. (PhD)
 Course Description
The module is focusing on the themes of rural and urban
development, rural-urban interaction and rural-urban migration.
The focus lies on the access to various kinds of resources to make a
living among households and individuals in both rural and urban
areas, including the interaction between farm and non-farm based
sources of income.
The module will look at the concepts and theories of rural
development, alternative rural development strategies, programs
and policies, rural institutions and rural non-farm economy.
Urban development issues like the causes and effects of
urbanization, role of cities in urban economy and roe urban
informal sectors in migration process will also be explored.
Further, the module looks at rural-urban interaction and rural-
urban migration. The course seeks to create a better
understanding of the interface and interdependence of rural and
urban development policies, processes and programs.
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 Learning Outcomes
At the end of this module, graduate students will be able to:
 demonstrate knowledge and understanding of past and contemporary
issues pertaining to urban and rural development as well as theories
and frameworks for understanding urban and rural development, and
the interaction between the two in developing countries
 apply their knowledge and understanding, and problem-solving
abilities, to independently identify urban and rural development issues
from a geographical perspective
 critically analyze the empirical and theoretical connections between
rural and urban development
 identify and analyze specific urban and rural development needs
 demonstrate an ability to make assessments in the fields of urban and
rural development, taking into account relevant scientific, social and
ethical aspects, as well as demonstrate an awareness of ethical aspects
of research on urban and rural development work

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 Chapter outline
CHAPTER 1: CONCEPT AND THEORIES OF RURAL DEVELOPMENT

CHAPTER 2: RURAL DEVELOPMENT STRATEGIES, PROGRAM AND POLICIES

CHAPTER 3: RURAL INSTITUTIONS

CHAPTER 4: RURAL NON-FARM ECONOMY

CHAPTER 5: RURAL LIVELIHOODS AND POVERTY REDUCTION STRATEGY

CHAPTER 6: THEORIES OF URBAN DEVELOPMENT

CHAPTER 7: PROBLEM OF URBANIZATION AND URBAN GOVERNANCE

CHAPTER 8: RURAL-URBAN MIGRATION

CHAPTER 9: RURAL-URBAN INTERACTION

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References

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Assessment

I. Assessment may consist of term paper (20%),

II. Article review (20%),

III. Test (20%) and

IV. Final examination (40%).

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Chapter One: CONCEPT AND THEORIES OF RURAL DEVELOPMENT

 Concept of rural development

 Determinants of rural Development
 Theories of Rural Development
 The classical School
 The Modernization Theory
 The Dependency Theory
 Rosenstein Rodan’s Theory Big Push
 Leibenstein’s Critical Minimum Efforts Thesis
 Lewis Model of Economics Development with Unlimited
Supply of Labor
 Human Capital Model of Development
 Uni-modal and Bimodal Approaches to Rural development
 Gunnar Myrdal’s Thesis of Spread and Backwash Effect
 Recent Advance in Rural Development Theories

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Reflection points
1. What do you understand about:
 Rural area?
 Rural development?
2. Why the concern for rural development?
3. Discussion the challenges of rural development in Ethiopia.
4. What solutions do you propose to address these
challenges?

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 The concept of development
 Development is a value-laden and subjective concept
o different definitions as given by different professionals.
• As a desirable change
– Development is defined as a change that is desirable.
• What is desirable at a particular time, place and in a particular
culture or context?
– Development is cherished by all individuals, communities and nations
• Irrespective of their culture, religion and spatial location.
• As development of human beings
– Development should not be understood as to develop things but to
develop human beings.
• Fulfillment of basic needs
– Development involves multiple dimensions including economic, social,
political, institutional, cultural, environmental, and technological
aspects.
 Cont’d…
• As an improvement of a set of values of a multidimensional process
– Development is a process of improvement with respect to a set of
values.
• multidimensional process or a set of objectives with economic,
social, political and cultural dimensions.
• As sustainable development
• development that meets the needs of the present without
compromising the ability of future generations to meet their own
needs.
• a process in which the set of desirable societal objectives, or the
development index, does not decrease over time.
– Constancy of natural capital stock, including natural resources and the
environment, is a necessary condition for sustainable development.
– The set of ‘sufficient conditions’ includes an appropriate institutional
framework and governance system for implementation of sustainable
development policy.
 Cont…
• Self-esteem
– Self-esteem is an inherent value of human beings.
– Self-esteem features in the sense of worth and self respect.
– It is a sense of not to be used by others for their own ends.
– It is difficult to feel self-esteem without development which
includes better material welfare.
• From this natural value of human beings, development is legitimized as
a goal of gaining self-esteem.
• Freedom
– Freedom here is a broad value.
• It encompasses freedom from social servitudes of men to nature,
ignorance, other men, misery, institutions and dogmatic and harmful
beliefs.
– Freedom is having choices and minimization of
constraints.
 Concepts and Objectives of Rural Development
• The Concept of Rural Development
– The term rural development connotes overall development of rural
areas with a view to improve the quality of life of rural people.
– comprehensive and multidimensional concept, and encompasses
the development of
agriculture and allied activities,
village and cottage industries and crafts,
socio-economic infrastructure,
community services and facilities, and, above all,
the human resources in rural areas.
• Rural development as a system involves technological and
environmental factors and relationships as well as social and cultural
ones.
• A wide range of process affects such system and may contribute to
bringing about changes within them.
 Cont…
• Components of rural system include:
– Natural environment:
• It comprises all natural components like land/soil, vegetation,
animals, minerals, water, air etc.
– Technologies
• that are employed to in order to make use of natural resources
and other resources to achieve development purposes.
– Population or demographic factors
• comprising density of population and trends of population
growth.
– Economic factors
• involving production, markets, and connection of rural economy
to the rest of the national economy and world markets.
– Social structures of rural society and producers along with
values or culture (e.g. tenants, landless, landowners etc.).
 Cont…
• Rural development can be understood in different
perspectives
– as a phenomenon
• rural development is the end-result of interactions between
various physical, technological, economic, socio cultural and
institutional factors.
– as a strategy
• it is designed to improve the economic and social well-being
of a specific group of people-the rural poor.
– as a discipline
• it is multi-disciplinary in nature, representing an
intersection of agricultural, social, behavioral, engineering
and management sciences.
 Cont….
• In the words of Robert Chambers (1983: 147): Rural Development
– is a strategy to enable a specific group of people, poor rural
women and men, to gain for themselves and their children more
of what they want and need.
– involves helping the poorest among those who seek a livelihood
in the rural areas to demand and use more of the benefits of
rural development.
• Thus the term rural development may be used to imply anyone of
the above-mentioned connotations.
• To avoid confusions among the numerous definitions, we shall
define rural development as:
– 'A process leading to sustainable improvement in the quality of
life of rural people, especially the poor.'
 Cont….
• In addition to economic growth, this process typically involves
changes in
– popular attitudes, - institutions, and - in many cases even in
customs and beliefs.
• The process of rural development may be compared with a train
in which each coach pushes the one ahead of it, and is in turn
pushed by the one behind, but it takes a powerful engine to
make the whole train move.
– identifying, and, if needed, developing a suitable engine to
attach to the train.
– no universally valid guidelines to identify appropriate engines
of rural development, if at all they exist.
• It is a choice that is influenced by time space and culture.
 Cont…
• According to the World Bank, rural development is a strategy
designed to improve the economic and social life of a specific
group of people- the rural poor.
– involves extending the benefits of development to the
poorest among those who seek a livelihood in the rural area.
– The group includes small scale farmers, tenants and the
landless.
• The World Bank and other international agencies place main
emphasis on increasing:
– Production,
– Productivity,
– Employment, and
– Mobilizing where land labour and capital are available.
 Cont.…
• However, there is recognition that poverty and inequality have to
be reduced, that development involves values and quality of life
issues and that the poor should participate in activities and be
involved in decision making.
– This strategy came to be known as “growth with justice” or
“redistribution with growth”
– This implies that redistribution of additional incomes and not a
basic restructuring of the production system or a
redistribution of assets.
• The reliance of this strategy is on growth generated through the
market mechanism.
• Poverty alleviation had to be realized through employment
creation and increasing the value added shares in addition to
productivity and income.
 Cont.…
• But a careful look at the rural economy of most LDCs reveals that:
– Disease is widespread
– Health services are poor
– Access to education is limited
– Agricultural out put is low
– Rural micro financial institutions are limited (where traditional
money lenders are exploiting farmers)
– Land ownership is skewed
– Administration is poor.
• All the above problems are interconnected and there is a need to tackle
them simultaneously.
– Thus the term “Integrated rural development” is coined for these
situations to address all the interrelated problems cited above.
• Thus in brief, one can define rural development as a strategy designed
to improve the living standards of the rural population as a whole,
which requires a wholesome or integrated approach
 Cont…
Objectives of Rural Development
1. to improve the living standards or well-being of the mass of the
people by ensuring that they have security and their basic needs
such as food, clothing, shelter and employment are met;
2. to make rural areas more productive and less vulnerable to
natural hazards, poverty and exploitation and to give them a
mutually beneficial relationship with other parts of the regional,
national and international economy;
3. to ensure that any development is sustainable (implying that it is
not a one-time injection) and involves the mass of the rural
people (this includes, among other things encouraging self-
reliance and public participation in planning rural activities);
4. To ensure as much local autonomy and as little disruption to
important traditional custom as possible. The former usually
means promoting administrative decentralization and political
self-government.
 Cont.…
• Because the above objectives are interconnected, the term “integrated” is a
prefix to “rural development” to indicate a new multipurpose thrust of rural
planning.
– In this context, rural development is no longer solely concerned with agricultural
matters, but with all aspects of rural life and rural economy.
– Rural development is to be, at least, in theory “balanced” and the related and
reinforcing nature of different sub-sectors of the rural system necessitated
formulation of development policy and planning similar to that of national
development planning.
• The above explanation meant that integrated rural development planning had
to involve the target group which, in turn, means local participation and
decentralization.
• It also means that planning has to take place in defined areas but at many
different scales and varying forms of local communities, administrative districts
or geographically defined regions such as river basin.
• While not a nationwide program, integrated rural development had to be
symbiotically related to nationwide development plans and programs.
• Integrated rural development must be viewed as an organic integration which
assesses properly in terms of the total human needs, values and standards of
the good life and the good society undergoing change rather than simply
understanding it, as in terms of provision of inputs and infrastructure required
to raise outputs and productivity.
 Determinants of Rural Development
• There are many physical, technological, economic, socio-
cultural, institutional, organizational and political factors that
affect the level and pace of rural development.
• These factors operate at all levels household, village, district,
state, nation, and the world as a whole.
• Depending upon how they are managed, these factors can have
both favorable and adverse effects on development.
• For instance, if the human resources of a country are not
properly developed by proper nutrition, health care, education
and training, and are not productively utilized, these resources
become liabilities and obstacles to development.
• But if they are properly developed and utilized, then they
become great assets and major factors contributing to
development.

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 Determinants of Rural Development
Output change
• a few observations will be made about economic growth as a means of
promoting overall development.
– It is now pointed out that growth should not be considered as an end in
itself, but only as a means of promoting development.
• The national income accounts have been designed to provide indicators
of aggregate output or, alternatively, on the other side of the accounts,
aggregate income to owners of the factors of production. Some of these
indicators are gross national product, net national product, national
income, personal income and personal disposable income.
• Rural development is characterized by multiple goals, and so there is no
single index or indicator which can adequately capture the multifaceted
nature of rural development. At the same time, unless we can measure
the phenomenon of rural development, we are unlikely to know much
about the quantitative impact of the factors that influence it.
• In the absence of a single index of rural development, we shall use
change in output as a proxy measure, and discuss the role of various
factors that appear to us, on an a priori basis, as important determinants
of this measure.
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 Determinants of Rural Development
• Let us assume that change in output is a
function of changes in natural resources,
employment, capital, technology and
institutions and organizations.
• This can be expressed in notational form as
follows:
• 𝑌 = 𝑓 (∆ 𝑁, 𝐸, 𝐾, 𝑇, 𝑂)
– Where Y = output, N = natural resources, E =
employment, K = capital, T = technology, 0 =
organizational and institutional framework and
delta (∆) means ‘change in’.
• The variables might be called the ‘instrument
variables’ of economic growth or change in
output.
• it is not easy to determine the causal
relationship between Y and these instrument
variables.
• All change simultaneously, and the
contribution of a single variable is difficult to
isolate, but at least some statistical
associations are often possible, and have
been established by a number of economists.

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 Determinants of Rural Development
Changes in the Utilization of Natural
Resources
• the resources provided by nature include air,
climate, soils, water, plants, animals, mineral
ores, mineral oil, coal, natural gas, solar
radiation, and certain amenities
• As time goes by, the world’s resource pattern
changes, not because nature’s basic provision
alters, but because of changes in what
constitutes a resource.
• Natural resources can be classified into two
categories:
• non-renewable or stock resources, such as
metal ores, mineral oil and coal deposits and
• renewable or flow resources such as solar
radiation, animal and plant species, and winds,
• For poor countries the greater the percentage • Sustainable development - in the
of income goes to the owners of natural process of economic growth, we
resources, and thus the greater the importance maintain our natural resources and
of natural resources to economic
development. environment together, and
use/harvest only that quantity
which is regenerated naturally.

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 Determinants of Rural Development
Changes in Employment
• The level of employment is best considered from the viewpoint of the
long run and the short run.
• Over the long run, employment is related primarily to population
growth.
• The higher the rate of population growth, the larger will be the amount
of labour used relative to the other factors of production.
• it takes time and investment to get a fully productive human being.
• If the time is shortened by the necessity for children to work, the result
tends to be less productive labour over the long run.
• In the short run, on the other hand, employment can be increased by
providing more opportunities for people to work.
• No country with an educated, technically trained labour force is poor,
and no country with a predominantly illiterate, untrained labour force
is rich.
• In general, the quality of the labour force is much more critical in
economic development than is the availability of natural resources.
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 Determinants of Rural Development
An Increase in Capital
• Consider capital to be the key instrument of economic development.
• The Harrod—Domar model represents a typical example of this school
of thought - capital accumulation plays a crucial role in the process of
economic growth, as the rate of economic growth is expressed as the
product of the savings rate and output-capital ratio.
• Capital formation is, therefore, an important prerequisite of economic
development. Much of new technology, such as high yielding seeds,
chemical fertilizers and pesticides, tractors, combine harvesters and
food processing plants, is embodied in capital.
• Increases in the capital stock lead to increases in the marginal
productivity of labour which, in turn, generally enhances wage rates.
• Capital can be classified in various ways. Long-term capital is
embodied in improvements in land, machinery, equipment, basic
infrastructure and other long-lived forms of capital, while operating
capital exists in the form of seeds, fertilizers, fuel and other raw
materials which are used up annually in the production process.
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 Determinants of Rural Development
An Increase in Capital
• capital resources can be acquired in one of two ways: by domestic
saving, or by foreign aid.
• In most countries, domestic savings can be acquired from private
citizens who consume less than their incomes, and make the
difference available in the form of investment to the economy.
• Most of LDCs’ rural sector is starved of capital, and this is perhaps
one of the most serious constraints on rural development. The
rate of capital formation in the rural sector has been low vis-à-vis
the rate required for achieving a higher level of rural
development. Furthermore, much of the surplus generated in the
sector is siphoned off to the urban sector for a variety of reasons,
including lack of institutional arrangements for mopping up small
savings and providing incentives to small savers.
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 Determinants of Rural Development
Changes in Technology
• Technological advance is the most important factor that accounts for
economic development. Studies in the advanced countries have shown
that increases in natural resources, employment, and capital have
accounted for less than one-half of the increases in output over time.
• The bulk of growth must, therefore, be accounted for by qualitative
rather than quantitative increases in the factors of production.
– In essence, this is what technological advance is—an improvement
in the processes of production that produces increases in output per
unit of input.
– It is improvements in knowledge and know-how; it is improved
skills; it is utilizing better machinery and equipment, all of which
combine to increase productivity.
• Many scholars of development, notably Hayami and Ruttan (1970),
Schultz (1964) and Rostow have constructed theories of development
which have technological advance at the very center of concern.
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 Determinants of Rural Development
Changes in Technology
• In Schumpeter’s model of economic development, the entrepreneur is the
central figure - He revolutionizes the pattern of production by exploiting
inventions, by exploiting untried technological possibilities for producing new
commodities, by producing old commodities in new ways
– the capitalist rationality and predictable institutions are important
prerequisites.
• Credit has an important role as a means of enabling entrepreneurs to obtain
productive resources and to carry out innovation.
• In his opinion, there is no limit to the increase in the rate of output per head
– The critical question is, how to promote a high rate of technical change.
– the general economic climate must be conducive to innovation and
knowledge-building.
– As a rule, if incentives exist for individuals to innovate, they will.
• A country which has a size-able and educated middle class can rely largely on
the profit motive to push inventors, scientists and entrepreneurs to undertake
technological advance.
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 Determinants of Rural Development
Change in the Organizational and Institutional Framework
• It was the institutional economists who recognized the significant role that institutions
and organizations play in the process of economic development.
• The terms ‘organization’ and ‘institution’ are often used interchangeably. Organizations
are a subset of the broader set of institutional structures or arrangements.
• It is created to give effect to a certain institutional arrangement. The main function of
an economic organization is to provide signs that will guide self- interested economic
agents/entities to act in the interest of the larger community.
• The main task of any nation-state is to create institutional arrangements that provide
the needed signals to individual economic entities. Markets provide such signals
efficiently, so long as they operate with low transaction costs.
• Non-market mechanisms, such as government agencies and non-governmental
organizations, including cooperatives, can also provide such signals.
– reduction of transaction costs, enhancement of bargaining power of rural
producers vis-à-vis those to whom they sell their produce and from whom they buy
production inputs and services, influencing investments and savings and bringing
the two together.
• Changes in these organizations and institutions over time will probably have
pronounced effect on economic output and development .
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 Determinants of Rural Development
Change in the Organizational and Institutional Framework
• At the institutional level, laws of property and contract have a profound impact
on economic growth.
a) What may a man do with his property?
b) What may others do to his property? and
c) In what kinds of economic activity may he engage?
• Some societies are fairly liberal in permitting private firms and individuals to
operate without restrictions, while others impose many restrictions that curtail
private profits, in the name of protecting the broad public interest.
• All these forces and factors determine the incentives for economic production,
and must not be neglected in the search for a favourable institutional and
organizational climate for economic development.
• The only organization that conceptually satisfies all the criteria of a good rural
organization is a cooperative.
– The cooperative form of organization is solely designed for promoting the
mutual interests of user patrons on the basis of equality and equity.
– The objective is not to do business for the sake of profits only, but for
meeting the members’ needs.

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 Determinants of Rural Development
Relation between Rural Developments and its Determinants
• It is not easy to quantify the relationship between rural development and the
various determinants discussed in the preceding section.
– there are no time series data available on any acceptable measure of rural
development, nor on these determinants, some of which cannot be
quantified
– all these determinants keep changing simultaneously and it is not possible to
isolate and measure the contribution of any single determinant, without
resorting to some sophisticated econometric techniques.
• A few attempts have been made in the past to measure the impact of some of
these determinants on rural development.
– For instance, Hayami and Ruttan (1970) attempted to explain differences in
agricultural output per worker (a proxy for agricultural development)
between a representative group of developed and developing countries, and
found that (a) resource endowment (land and livestock), (b) technology
(fertilizers and machinery); and (c) human capital (general and technical
education), accounted for 95 per cent of the differences.

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 Theories of Rural Development
The Classical School
• The economists of the late eighteenth and early nineteenth centuries
were primarily concerned with the conditions of economic growth.
• This was the period of the 'Industrial Revolution' in Europe.
• The Classical economists-including Adam Smith, David Ricardo, Thomas
Robert Malthus, John Stuart Mill and Karl Marx- lived through the period
of take-off into sustained growth.
• The classical economists assumed that economic growth would naturally
lead to development.
• It was towards the end of World War II around 1945, that development
became an important field of study and attracted several scholars.
• Two distinct schools of thought emerged in the fifties, namely, Capitalist
and Marxist,
– the 'Modernization Theory' of the Capitalist School, and
– the 'Dependency Theory' of the Marxist School.

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 Theories of Rural Development
The Modernization Theory
• Rural/agricultural development thinking until mid 1970s was dominated by the
concept of modernization.
– an introduction of new, western technology and management practices,
– with the intention of imitating patterns of agricultural development which
had evolved in developed countries.
• The rural economy in developing countries is traditional dominated by peasant
farming or subsistence oriented agriculture, handicrafts and poor markets.
– the traditional economy and agriculture need to be transformed into
modem large-scale market-oriented agriculture employing modern
technology transferred from developed countries.
– Transfer is the central concept of modernization perspective.
– agricultural development is envisaged to pass through stages of growth as
inevitable linear process emulating the historical process through which
agricultural development in developed countries has passed.

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 Theories of Rural Development
The Modernization Theory
• The transformation process is by transfer of technologies, know-how and institutional
models.
• Diffusion of improved ways of doing things through the adoption of new practices and
techniques
• In the process of development, traditional social and political institutions would be
replaced by modern ones.
• Traditional feudal forms of political power will also be replaced by democratic forms of
governance.
• The modernization perspective points out the inevitability of technology for increasing
production, the replacing of feudal institutions by democratic ones, and the expansion of
greater scientific temper, and secular values and norms.
• The emphasis is on transferring technologies and institutions rather than on
strengthening and improving what already exists. The transfers include for example:
– material transfer - chemical inputs, genetic materials etc.
– cultivation practices (e.g. rice transplanting)
– know-how and fixed designs (blueprints) for technology, institutions or approaches
to research.
– technology generation capacity through institution building and technical assistance.
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 Theories of Rural Development
The Modernization Theory - Criticisms
• The transfer is not as such located within the contexts of recipient
countries.
• The transferred technologies should be compatible with the opportunities
and constraints faced by the producers and farmers applying the
technologies.
• Inadequate attention to feedbacks from farmers.
• The institution transfer is elitist and centralist and does not consider the
indigenous social and institutional contexts.
• The modernization theory was not able to predict or explain:
– shifts in international trade in favour of the developed countries;
– world-wide depression in 1970s;
– adverse environmental impacts of development
– does not account the effect of the absence of effective control and
implementation of rules and regulations in developing countries,
which is an important constraint to development of trade, investment,
business and markets and other developmental efforts. 37
 Theories of Rural Development
The Dependency Theory
• The developed capitalist world changed the colonized nations into sources of cheap
inputs to production in the capitalist nations and markets for products,
– hindering and distorting the development way of developing countries.
– suggests that class struggle is the engine of social change and development.
– It is against the modernization theory - argues for revolutionary way of change
and not for evolutionary approach.
• The developed countries could not have achieved the level of development that they
have without the systematic exploitation of developing countries
• Countries that are now poor have been forced into the stage of underdevelopment
by a global system of capitalist exploitation;
– Different aids offered are also claimed to serve as a vehicle to promote the
interests of international capital in different forms - food aid is used as political
weapon.
– Multinational corporations are considered to be the center of the world
capitalist system that promote the interests of the international capital and the
dependence of developing countries, for example, tractorization,
commercializing seeds, fertilizer and pesticide; growing role of MNC in
vegetable and flower production, health services…
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 Theories of Rural Development
The Dependency Theory
• In the context of rural development, rural-urban linkage is being exploitative- the
urban exploiting the rural.
– Policies are biased against rural economy and society.
– relieving rural economy and society from urban elitists’ pressure.
• The school was popular in 1970s, Raul Prebish being the forefront theoretician for the
perspective.
– However, in the 1980s, the theory lost much of its initial popularity, and was
criticized as being 'too deterministic' and 'too simplistic'.
– 'underdevelopment' in developing countries (the periphery) is the result of
'development' in developed countries (the core/centre),
– was falsified by the experience of the East Asian tigers.
– These tigers were initially the developing countries, (i.e., they were on
the periphery), but in course of time they became highly developed and
competitive, i.e., they moved from the periphery to the core.
• The theory did not consider the role of several internal factors, such as excessive
population growth, underdeveloped human resources, shortage of natural resources
and class struggle, in explaining the existence of 'underdevelopment. 39
 Theories of Rural Development
Rosentein Rodan’s Theory of Big Push
– falls in the framework of modernization
– argues that development that proceeds bit by bit will not add up in its
effects to the sum total of a single bit, big push.
• A minimum quantum of investment is a necessary, though not sufficient
condition of success.
• Rosenstein-Rodan identifies three different kinds of indivisibilities that
may be considered to be the main bottlenecks to the development in
developing countries. These are
– indivisibility in the supply of social overhead capital (unevenness of
capital for example infrastructure),
– indivisibility of demand (complementarity’s of demand) due to
diversity of human wants – generate interdependencies in investment
decision.
– the indivisibility (kink) in the supply of savings due to low income.
• The development process is a series of intermittent 'jumps', and each
jump requires a 'big push'.
• A major criticism of this theory - the resources required to give the 'big
push' are of such a high order, that a developing country like Ethiopia
cannot afford them.
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 Theories of Rural Development
Leibenstein’s 'Critical Minimum Effort Thesis'
• In order to attain sustained material growth, it is essential that the initial
stimulant to development be of a certain critical minimum size.
• Economic growth in the underdeveloped and overpopulated countries is not
possible unless a certain minimum level of investment is injected into the
system as a consolidated dose that pulls the system out of stagnations. This
minimum level of investment is called ‘critical minimum effort’.
• Every economy is under the influence of ’shocks’ and ‘stimulants.
– Shocks - forces which reduce the level of output, income, employment and
investment etc.
– On the contrary, stimulants raise the level of income, output, employment and
investment etc.
• The stimulants have a tendency to raise per capita incomes above the equi-
librium level.
– But in backward economies, long-term economic development does not take place
because the magnitude of stimulants is too small. i.e. efforts to escape from
economic backwardness are below the critical minimum needed for sustained
growth.
• Example - Population growth - a small increase in capital through raising
incomes will stimulate more than an equivalent increase in population, and a
proportional decline in per capita income. - capital accumulation above a certain
minimum rate would eventually permit development. The need for a minimum
effort arises to: overcome internal and external diseconomies of scale, 41
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 Theories of Rural Development
Lewis’s Model of Economic Development with Unlimited Supply of Labour
• Within the framework of modernization theory - by W. Arthur Lewis (1954: 139-92)
• In many developing countries, there exist large reservoirs of labor whose marginal
productivity is negligible, zero, even negative.
– The labor is available in unlimited quantities, at a wage equal to the subsistence
level of living.
– Subsistence wage rate plus a margin is sufficient to overcome the friction of
moving from subsistence sector to the capitalist sector.
– As the supply of labor is unlimited, new industries can be set up and the existing
ones can be expanded without limit, at the ruling wage rate.
• Since the marginal productivity of labor in the capitalist sector is higher than the ruling
wage rate, there results a capitalist surplus.
– This surplus is used for capital formation, which makes possible employment of
more people from the subsistence sector.
– The increase in investment by the capitalist raises the marginal productivity of
labor, which induces capitalist employers to increase their labor force till the
marginal productivity of labor falls to level equivalent to the ruling wage rate.
– This process goes on till the capital labor ratio rises to the point where the supply
of labor becomes inelastic.
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 Theories of Rural Development
Lewis’s Model of Economic Development with Unlimited Supply of Labour -
Criticism
• Lewis' optimism concerning development by absorption of disguised
unemployment from agriculture is unfounded, because it is not possible to
transfer a large number of workers permanently and on a full-time basis from
agriculture to industry, without a drop in agricultural output,
– i.e. the marginal productivity of labor in agriculture is not zero and fails to
consider the possibility of change in productivity in agriculture
• The basic premise of the Lewis model is that labor productivity in agriculture
must increase substantially in order to generate surplus in the form of food to
be used for development of the non-farm sector. However the relevance of the
model is constrained by a number of factors including:
– labor unions may push the wage rate up as labor productivity increases, and
keep the rate of profit and rate of capital formation lower than expected;
– The capitalist employer may use the surplus for speculative or non-
productive purposes,
– The capitalist industrialist may use capital-intensive technology instead of
labour-intensive 44
 Theories of Rural Development
The Human Capital Model of Development
• The model stresses the importance of investment in human capital in the
process of economic and social development.
– human capital - acquired mental and physical ability through education
training, health care, and pursuit of some spiritual methods.
• The classical and neoclassical economists did not explicitly include the quality
of human resources in their theoretical framework; labor was taken to include
both physical and mental effort
– Theodore Schultz (1964) elaborated the concept of human capital, and
explicitly considered the investment in human capital as important
determinant of economic development.
– Human physical and mental capabilities are partly inherited and partly
acquired, and they vary from individual to individual, i.e., the classical
assumption of homogenous labor force does not hold.
– Human capital directly contributes to development through its positive
effect on productivity, and through reduction in resistance to the diffusion
of new technologies in the economy, especially in the rural sector.

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 Theories of Rural Development
The Human Capital Model of Development
• It shifts the emphasis from physical capital formation to human capital
formation, and from industrial development to rural development, as a basis
for overall development.
– This model seems appropriate for developing countries where a lot of
under developed human resources with potential for development exists.
Besides, human resources are renewable, and hence inexhaustible.
– Therefore human capital can be substituted for exhaustible non-renewable
physical capital in the process of development, and thus relax the constraint
on development imposed by inadequacy of physical capital to a large
extent.
– strategies for development of the tertiary (services) sector, which is the
fastest growing sector all over the world requires skilled, experienced and
innovative human resources for their success.
– Human resource development through nutrition, health care, appropriate
education, training and empowerment deserves the highest priority now
also under Ethiopian conditions.
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 Theories of Rural Development
Unimodal and Bimodal Approaches to Rural Development
• Defined in terms of the path selected for development of agriculture,
– the argument for the necessity of the development of large-scale units of
farm production (bimodal or capitalist approach to agricultural
development) and
– the argument for agricultural transformation on the basis of small-scale
peasant farms (unimodal or neo-populist approach).
• Unimodal approach
– It argues that small producers who are not separated from their means of
production and who survives in the sense of household producers retain a
degree of control over land and family labor in spite of secular
differentiation that may take place in the economy due to commoditization
and commercialization.
– The strategy aims at the progressive modernization of the entire agriculture
sector (e.g. Japan and Taiwan).
– encourage a more progressive and wider diffusion of technical innovations
adapted to the factor proportions of the sector as a whole.
– the strategy is maximum mobilization of labor and land resources of the
developing countries.
• The success of individual farm units in allocating resources so as to minimize costs is an
essential ingredient of efficient agricultural strategy.
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 Theories of Rural Development
Unimodal and Bimodal Approaches to Rural Development
• Bimodal approach is a modernization strategy that concentrates resources in highly
commercialized sub-sector, with the resulting development pattern based on a dualistic
size structure of farm units (e.g. Mexico, Colombia).
■ Bimodal strategy - resources are concentrated within a subsector of large, capital-
intensive units
– It is based on theoretical perspective which asserts that commoditization and
commercialization process inevitably generate differentiation in agrarian societies
whereby rural producers are set apart into distinct classes (agricultural capitalist,
small farmer, land less agricultural employee) and producing a dual size structure of
farm units.
• The embraced path of agricultural development needs to facilitate the fulfilment of the
objectives and policies and components of the agricultural strategy chosen.
• Any agricultural strategy would comprise programs of institution-building related to such
activities as
– agricultural research, rural education and farmer training,
– programs of investment in infrastructure, including irrigation and drainage facilities
and rural roads,
– programs to improve product marketing and the distribution of inputs and policies
48
related to prices, taxation, and land tenure.
 Theories of Rural Development
• The multiple objectives of agricultural development are the choice criteria of an
agricultural development strategy. The three major objectives indicated are:
i. Expansion of farm output and income: There is a need to achieve a rate and pattern of
output expansion in agriculture that promote overall economic growth and structural
transformation taking full advantages of positive interactions between agriculture and
other sectors.
• This objective encompasses the contributions of agriculture to development -
– providing increased surplus of food and raw materials to meet the needs of the
expanding non- farm sectors,
– earning foreign exchange through production for export, and
– providing a net flow of capital to finance a considerable part of the investment
requirements for infrastructure and industrial growth.
– The growth of a marketable surplus of farm products,
– expansion of foreign exchange earnings and increased availability of resources for
capital formation
– growth of farm cash income associated with structural transformation means
increased rural demand for inputs and consumer goods that can provide
important stimulus to domestic industry.
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 Theories of Rural Development
ii. Broad-based improvement of the welfare of the rural population: This is
achieved through altering the predominantly agrarian structure of the economy.
– The possibility of enlarging the average income of farm households is
determined mainly by the rate and character of the structural
transformation, as manifested in the decline of the relative, eventually the
absolute size of the farm work force and the associated growth of
commercial demand for agricultural products.
– The inequality in income distribution is a visible feature of most less
developed countries.
– This inequality will either be reduced or exacerbated depending whether
the demand for labor increases more or less rapidly than the country's
workforce.
– The extent to which expansion of farm output leads to widespread
increases in income-earning opportunities depend on the development and
diffusion of technological innovations.
– Certain dimensions of welfare can be furthered by direct action through
government programs like rural works and public health and related
activities.
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 Theories of Rural Development
iii. Fostering a pattern of agricultural development -
 will have a favourable impact on social development (modernization as a result of
inducing changes in rural attitudes, behavior and institutions).
– Development of social institutions is a feature of structural transformation (e.g.
agricultural research centers, educational facilities for farmers, training, private,
public or cooperative business organizations for credit and input distribution and
product marketing; irrigation associations, and other groups).
• The central element of a unimodal strategy is the development and diffusion of highly
divisible innovations that promote output expansion within an agrarian structure.
• Bimodal or capitalist agriculture can develop as landlord capitalism (capitalism from
above) or as peasant capitalism (capitalism from below) or as a mixture of both forms.
– Such agrarian change in developing countries is the development of a differentiated
peasantry, from which a class of capitalist farmers and one of the agricultural wage
labourers can emerge.
– The agrarian question is however not solved from the point of view of the whole
social formation until a regular surplus on reasonable terms (acquired through
market, taxation or savings) is made available to enable industrialization to proceed
and capitalism to develop outside agriculture. This will break then the political power
of the rich peasantry.
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 Theories of Rural Development
Gunnar Myrdal's Thesis of 'Spread and Backwash Effects‘ - Gunnar Myrdal (1957)
• Backwash effect - It basically means that if one particular area in a country starts
growing or developing, it causes people, human capital as well as physical capital
(infrastructure, finance, machines etc.) from other parts of the country to incline
towards this growing centre.
– This essentially leaves the other areas worse off than before because their best
brains and capital leave them to go to the growing centre. It means that growth
in one area adversely affects the growth in the other.
• Development in one place, spreads to its suburbs and all the adjoining areas.
– Again cities and areas that starts growing have benefited due to the Spread
Effect caused by the growth.
– Empirical evidence shows that 'back wash effects' are neutralized, by 'spread
effects' only at a high level of development.
– This is one of the reasons why rapid sustained progress becomes an almost
automatic process, once a country has reached a high level of development.
– At low levels of development, the 'spread effects' are either very weak, or are
not just strong enough to cancel the 'backwash effects', and the result in both
cases is poverty and stagnation.
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 Theories of Rural Development
Development Theories from Other Social Sciences
• Development is a complex process which is affected by both economic and non-
economic factors.
– The importance of non-economic factors was duly recognized by the Classical
school.
– John Stuart Mill thought that non-economic factors, like beliefs, habits of thought,
customs and institutions, play an important role in economic development, and he
attributed the backwardness of underdeveloped countries to the repressive and
anti-progressive character of their customs, institutions, and beliefs.
• Boeke (1953) gives an attempt of an explanation of underdevelopment in terms of
sociological dualism.
– he defines dualism as 'the clashing of an imported social system with an indigenous
social system of another style'.
– he concludes that the kindest thing the Western world can do for developing
countries is to leave them alone; any effort to develop them along Western lines
can only hasten their retrogression and decay. The acceptance of the dualism leads
to two policy conclusions:
 as a rule, one policy for the whole country is not possible; and
 what is beneficial for one section of society may be harmful 53
for
another.
 Thank you

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