Economics teaches that four factors of production-land, labour, capital and organisation-play important roles in the growth of agricultural or non-agricultural output. In fact, along with productivity, these are the main sources of growth. The share of each of these factors to total output varies over time depending on endogenous and exogenous conditions.
To understand the change, empirical results for more than two decades (from 1988 to 2014) can be considered. Data shows that the results for the most recent periods are similar to previous results. The results of the regression equation show that the model turned out to be a good fit for inputs used in paddy production for all years. This is reflected by the value of the Adjusted R2 that is almost equal or above 0.70 in all years. That is, more than two-thirds of the variations in output, which are explained by the explanatory variables used in the model. The parenthesised values of "t" indicate that the coefficients are highly significant.
If the case of paddy is considered, in 1988, the largest contribution to increased production came from land. During the 1980s, land was responsible for almost two-thirds of the total output. And this should be no surprise given the fact that paddy cultivation invariably involves the use of land.
In that year, the second important factor was material inputs -such as seeds, fertiliser and irrigation. These accounted for about a quarter of the output generated. This is also plausible since modern varieties of paddy being used at that time needed these inputs.
The contributions of labour and capital services to output were 13 and 20 per cent respectively. This indicates that roughly one-third of the output came from the joint contribution of material inputs and capital services. It should be noted that the total contributions from all inputs or factors of production come to 1.20 or 120 percent. This means that, in the base year, the production function was depicting increasing returns to scale-the ratio at which inputs increased was lower than the ratio at which output increased. In other words, output was rising faster than input.
There was a deviation in the comparable periods of 2000, 2008 and 2014. For example, the contribution of land substantially declined to 47 per cent from 61 per cent in the base year. This share for the other years was almost the same. This means that the share of land in total output has reduced by 14 percentage points in the compared periods. On the other hand, the contribution of labour increased by 17 per cent, that of material inputs decreased by 16 per cent and capital services by 19 per cent during the compared periods.
After summing up all the contributions of different factors in 2014, it can be observed that output increased almost by 1.0 or 100 per cent. In other words, the output increase was at the same rate as the input increase-implying constant returns to scale of the production function in 2014. This is in tune with available empirical observations where it has been noted that, the long-run trend of the production function tilts towards constant returns to scale, although there could be increasing returns to scale in the short-run. It can also be noticed that the value of the constant term assumed a more than three times increase in 2014 over the year 1988. Since the constant term embraces managerial and other factors, it can be presumed that paddy production in Bangladesh, through better management at the farm levels, approached a more efficient path in 2004 than in 1988.
The contributions of factors in the production of all crops can now be examined. The values of the adjusted R2 (0.58 and 0.73) for 1988 and 2004, respectively, point the robustness of the model in explaining the contributions of factors and their changes over time. Again, the parenthesised "t" values indicate that the coefficients are highly significant.
Contributions of factors in the production of all other crops in the base year were as follows: land 67 per cent, labour and capital 50 per cent and material inputs 10 per cent. The contribution of material input was less as these crops use less fertilisers, pesticides and seed. However, the sum of the contributions amount to 1.24 or 124 per cent. It implies that the production function depicted increasing returns to scale. Noticeably, the contribution of land almost halved in 2014. On the other hand, like paddy, the contribution of labour has increased. Interestingly, as opposed to the case of paddy, the contribution of material inputs increased for all crops. This could be due to the fact that, of late, farmers have been using more fertilisers in traditional paddy as well as in other crops. Summing up all the contributions of different factors in 2014, it can be observed that output increased by 1.04 or 104 per cent. By and large, the production function indicates constant returns to scale, pointing to efficiency in resource use in all crops through better management. Finally, in the 1980s, farmers were more dependent on increased use of inputs; recently the shift has been towards knowledge and management.
In this context, the hypothesis can be substantiated after drawing upon available research that Bangladesh has progressed well in farm management.
Michael Lipton's three 'F's-food, fertility and farm management-can be applied to the context of fight for poverty reduction in rural Bangladesh. Improvement in farm management and a declining role of land are apparently a good sign for a country facing loss of cultivable land. Finally, reduced role of land also has implications in terms of land-based power structure in rural setting where the poor no longer run after land owners as desperately as they did in 1980s.
Abdul Bayes is a former Professor of Economics at Jahangirnagar University.
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