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THE ROLE Oa= Ms .AGRECULTURAL Lsecmk M TAIWAN's Ecomwc ’DEVELORMENT THE ROLE oa= ms .AGRECULTURAL lsecmk m TAIWAN'S ecomwc ’DEVELORMENT Thesis for the Degree of .Ph. D. MICHIGAN STATE UNWERSITY Charles Hsi—chung -Kao_ 19164 7 _—_—‘-.- L 114231: LIBRAR Y 7‘ Ilil‘lllllllillllIlllllllllullllillilllilllltllllllflil‘lllil .L State 3 1293 10470 0137 Michigan University This is to certify that the thesis entitled THE ROLE OF THE AGRICULTURAL SECTOR IN TAIWAN 'S ECONOMIC DEVELOPMENT presented by Charles Hal-Chung Kao has been accepted towards fulfillment of the requirements for Ph.D. degree in Agricultural Economics .2 Major professor Date August 13, 1964 l i l 1 0-169 ,\ . .‘ . n i” .53 ’2'; .p I: I" Q1. JJ . 'J‘. AUG 2 4 2012 ABSTRACT THE ROLE OF THE AGRICULTURAL SECTOR IN TAIWAN'S ECONOMIC DEVELOPMENT by Charles Hsi-chung Kao The role of the agricultural sector in Taiwan's economic develOpment was examined, following Kuznets, in three aspects, i.e., product, market and factor, with special reference to the post-war period. The product aspect of the agricultural sector was analyzed in two periods: lQOl-HO and 19u5-62. It was concluded that the means used in increasing the crop yields in 1901-40 provides "an example of the Japanese approaches applied in a different setting." But this achievement was not attained by merely employing resources that had low Opportunity costs as Professor Bruce Johnston claims. Two modern inputs: fertilizers and irrigation, were used at quite high costs. Further progress was made in agriculture during the post-war period. The total agricultural production increased at an average growth rate of u.9 percent per year in 1953-60, well exceeding the high population growth of 3.5 percent per year. Such a rapid increase is not accidental. The government's "balanced growth" policy embedded in the three Four-Year De- velopment Plans, with the cooperation of Joint Commission on Rural Recon- struction, Farmers' Associations, and last but not least, farmers, seem to be key factors. Within this framework the factors responsible for the in- creased agricultural output include irrigation, fertilizers, seed improve- ment, agricultural extension service, agricultural credit, diseases and pest control, land reform, and U.S. economic aid. By using regression Charles Hsi-chung Kao analysis, it was found that there was a significant relationship between irrigation, fertilizers and the unit yield of rice at the 99 percent level of confidence. The market aspect of the agricultural sector was analyzed in terms of selling agricultural products to the domestic and international markets, and purchasing farm inputs and consumer goods from the non-agricultural sector. The discussion on this aspect was closely related to the changing structure of the economy as a whole. The factor aspect of the agricultural sector essentially involves a transfer of capital and labor. The items of capital transfer include the low government purchasing price of rice, the high government exchange price of fertilizers to rice, the land tax, agriculture's share in domestic capital formation and in earning foreign exchange. The second type of transfer is labor migration. The estimated out-migrants from agriculture were about 350,000 persons during 1951—60. If the past investment in each out-migrant is assumed to be NT $5,000, then the contribution made by the agricultural sector during this period amounted to NT$ 1.75 billion. The three aspects (contributions) of agriculture to economic develOp- ment were also measured by using Kuznets' formulas. These estimations confirm Kuzents' conclusion that_agriculture, strategic in the early phase, diminishes in relative weight in the economy as a whole in the process of development. Two important policy implications drawn from this thesis are (l) Taiwan's empirical success in following a "balanced growth" approach in economic develOpment, and (2) the existence of large potentials for im- proving agricultural productivity either by applying known methods or by the introduction of the non-conventional inputs. THE ROLE OF THE AGRICULTURAL SECTOR IN TAIWAN'S ECONOMIC DEVELOPMENT By Charles Hsi-chung Kao A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 196” ACKNOWLEDGMENTS The author gratefully expresses his deep appreciation to Professor Lawrence W. Witt, Chairman of my guidance committee, for his constant encouragement and tireless help during both the writing of this thesis and the entire Ph.D. program. He stimulated the author's interest in the area of research and his guidance and insight were most valuable. The comments and suggestions given by Professors Anthony Koo, Karl Wright, Drs. Ralph Loomis and David Boyne on this thesis are grate- fully acknowledged. Any errors and omissions in this thesis are, of course, the author's own responsibility. I am also indebted to Professors Dale Hathaway and Harry Brainard, both members of my guidance committee, for their help in carrying out my doctoral program. I am also indebted to the Department of Agricultural Economics, Michigan State University, for financial assistance. Finally, a most special debt of gratitude is owed to my wife Anne and my two children Richard and Joanne for their sacrifice and c00peration throughout all my graduate training. The thesis is dedicated to the author's parents who are now residing in Taiwan, the Republic of China. ii TABLE OF CONTENTS LIST OF TABLES Chapter Page I. INTRODUCTION . The Problem . Objectives . Sources of Data Methodological Issue . Procedure . GDU'I-F-‘(DH II. REVIEW OF LITERATURE 0 0 Modern Economists' Position on the Issue Agriculture vs. Industrialization . IO A Comparable Case: Japan 22 III. GENERAL BACKGROUND OF TAIWAN'S ECONOMY 28 Natural Environment . 28 Selected Characteristics of Taiwan's Agriculture 29 The Growth of the Economy in the Post-war Period 33 Government Agricultural Policy 40 IV. THE ROLE OF THE AGRICULTURAL SECTOR: PRODUCT ASPECT M7 Agricultural Output in the Pre-war Period: 1901-u0 H7 Factors Affecting the Increased Agricultural Output 51 Agricultural Output in the Post-war Period: 19u6-62 60 Factors Affecting the Increased Agricultural Output 68 Estimation of the Agricultural Product Contribution 95 THE ROLE OF THE AGRICULTURAL SECTOR: MARKET ASPECT 96 Selling Agricultural Products to the Domestic and International Markets 97 Purchasing Farm Inputs and Consumer Goods from the Non-agricultural Sector 109 Estimation of the Magnitude of Agricultural Marketization 115 iii sssss TABLE OF CONTENTS - Continued Chapter Page VI. THE ROLE OF THE AGRICULTURAL SECTOR: FACTOR ASPECT . 118 Capital . 118 Low Government Purchasing Price of Rice . 118 High Government Exchange Price of Fertilizers to Rice . 122 Land Tax . I23 Estimation of a Flow of Savings Originating in the Agricultural Sector into Capital Formation in the Non-agricultural Sector . 126 Agriculture's Share in Domestic Capital Formation 129 Earning Foreign Exchange . I30 Labo r Migration . 13” VII. SUMMARY AND IMPLICATIONS . 142 S unlmary O O O O O O O O O O 0 142 Implications . 149 BIBLIOGRAPHY 154 iv LIST OF TABLES Table Page 3.1 Average Size of Farm and Farm Families, Taiwan, 1900-1960 30 3.2 Multiple Cropping Index, Taiwan, 1946-1958 32 3.3 Total and Agricultural Population for Selected Years, Taiwan 35 3.4 Labor Force in Taiwan: Total, Agricultural, and Non-agricultural, for Selected Years 37 3.5 Selected Indicators of Taiwan's Economic Growth 38 3.6 Index Numbers of Wholesale Prices, Taiwan, 1952-1961 46 “.1 Index of Total Production and Agricultural Production, Taiwan, 1902-1940 49 4.2 Taiwan: Index Numbers of Area, Yield, and Production of Rice, Sweet Potatoes, and Sugar, 1901-1940 50 4.3 Production of Sugarcane and Rice Per Chia Before and After Irrigation in Chi-Nan Area, Taiwan 54 mu Investment and Operational Outlays for Irrigation, by Government and Irrigation Associations, and by Decades, Taiwan, 1901-1910 to 1931-1940 56 Ten-Year Average of Agricultural Population and its Percentage Share of Total P0pulation, Taiwan, 1910-50 57 Sources of Investment by Japanese and Taiwanese, Taiwan, l938-41 I 59 4.7 Number of Japanese and Taiwanese Students, 1926 6O 4.8 Indices of Agricultural Production, Taiwan, 1946—62 64 66 “.9 Indices of Crops, Taiwan, 1946-62 LIST OF TABLES - Continued Table Page 4.10 Value of Major Agricultural Products as Percent of Total Value of Agricultural Products, Taiwan, 1961 67 4.11 Area and Output of Threettdncipal Crops, Taiwan, 1945-1962 69 4.12 Sugar Price Paid by Taiwan Sugar Corporation as Compared With Market Price for Rice, 1953-1960 70 4.13 Production Credit from Government and Cooperative Sources, Taiwan, 1951-1960 78 “.11+ Average Production of Rice and Fertilizers Allocated, Taiwan, 1946-1962 82 4.15 Indices of Agricultural Output, Taiwan, 1950-1955 88 4.16 Farm Income and Its Distribution, Taiwan, 1950-1955 90 4.17 Change of Investment Pattern, Taiwan, 1950 and 1955 92 4.18 Percentages of Gross Fixed Capital Formation in Various Industries Financed by United States Aid, Taiwan, 1953-1960 93 99 5.1 Marketable Surplus of Rice, Taiwan, 1953-58 5.2 Average Rate of Rice Production Increase Compared with Population Increase, Taiwan, 1949-1961 100 5.3 Percentage Distribution of Net Domestic Product in Taiwan, 1953-62 102 5.4 Index Numbers of Industrial Production, Taiwan, 1946-1962 104 5.5 Changes in Composition of EXports of Taiwan, 1956-1962 106 vi LIST OF TABLES - Continued Table Page 5.6 Changes in Composition of Imports of Taiwan, 1956-1962 107 5.7 Comparison
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