Ishikawa's hypothesisIshikawa's hypothesis:industry mustaidagriculture in contemporary developingeconomiesRicardiantrap:underdeveloped agriculture→poorproduction of grains →rising grain price →increasing industrial wage → decreasing industrialprofit → declining investment rate →declininggrowth → underdeveloped agricultureAgriculture in today's developing countries needsmore infrastructural investment by the state orthe industrial sector to escape from the trap
Ishikawa’s hypothesis • Ishikawa’s hypothesis: industry must aid agriculture in contemporary developing economies • Ricardian trap: underdeveloped agriculture→poor production of grains →rising grain price → increasing industrial wage → decreasing industrial profit → declining investment rate →declining growth → underdeveloped agriculture • Agriculture in today’s developing countries needs more infrastructural investment by the state or the industrial sector to escape from the trap
ISRFand Ishikawa's formulaISRFbetweenagriculturalandindustrialsectors(agricultural surplus): Xa-Xiwhere Xa is agricultural exports,Xiits importsReal ISRF:S=Xa/Pa-Xi/Pi=(Xa-Xi)/Pa +(1/Pa-1/Pi)Xi=(Xa-Xi)/Pa +(1-Pa/Pi)Xi/Pawhere Pais priceindex of agricultural exports, Piprice index of its imports, thus Pa/Pi is terms oftradeforagricultural sectorConventional wisdom: Xa-Xi>0, S>0Ishikawa's hypothesis: : Xa-Xi<O, S<0
ISRF and Ishikawa’s formula • ISRF between agricultural and industrial sectors (agricultural surplus): Xa-Xi where Xa is agricultural exports, Xi its imports • Real ISRF: S=Xa/Pa-Xi/Pi=(Xa-Xi)/Pa +(1/Pa- 1/Pi)Xi=(Xa-Xi)/Pa +(1-Pa/Pi)Xi/Pa where Pa is price index of agricultural exports, Pi price index of its imports, thus Pa/Pi is terms of trade for agricultural sector ・ Conventional wisdom: Xa-Xi>0, S>0 ・ Ishikawa’s hypothesis: : Xa-Xi<0, S<0
Estimates of ISRF in China·Several estimatesof China'sISRFhavebeenmadeTwotypesofestimatesTypeA:Ishikawa(1967),Ishikawa(1990)Nakagane(1989)basicallysupportlshikawa'shypothesisType B: Sheng(1993), Knight and Song(1999)Huang et al.(2006), Yuan(2010) deny thehypothesis
Estimates of ISRF in China • Several estimates of China’s ISRF have been made • Two types of estimates • Type A: Ishikawa(1967), Ishikawa(1990); Nakagane(1989) basically support Ishikawa’s hypothesis • Type B: Sheng(1993), Knight and Song(1999), Huang et al.(2006), Yuan(2010) deny the hypothesis
Different approaches between the twotypes of estimates. Type A: based on official (planned) prices Preobrazhensky's proposition: Pa/Pi<1Type B:based on non-official,“appropriate'prices, which seem to reflect more correctlythe real supply and demand relations than theofficialprices
Different approaches between the two types of estimates • Type A: based on official (planned) prices • Preobrazhensky’s proposition: Pa/Pi<1 • Type B: based on non-official, “appropriate” prices, which seem to reflect more correctly the real supply and demand relations than the official prices