ABSTRACT
Knight and Song (2000) argue that there are three basic economic theories that apply to economic relationships between rural and urban areas. The first is the Lewis model of economic growth with surplus rural labour. The ‘coercive’ or ‘price-scissors’ approach suggests that urban industrialisation draws on abundant rural labour. Capital mobilised from rural productivity gains is invested in industrial development which creates increasing demand for agricultural goods and promotes further improvements in the efficiency of agricultural production. The result, according to the model, is improving dynamic equilibrium in rural-urban terms of trade. This has some resonances with Tiffen’s (2003) model discussed in Chapter 1 above (see also Figure 1.2). The second model is of economic growth financed by extracting rural surplus. This is related to the Rostow stages of economic growth model (see discussion in Chapter 1 above and Table 1.6). Thus the growth of the industrial sector is funded by reducing agricultural producer prices, consequently depressing rural income and therefore consumption, and promoting urban industrial capital accumulation. The final model of rural-urban economic exchange is based on the notion that economic policy favours the urban over the rural sector – Lipton’s (1977) ‘urban bias’ thesis. The argument is that urban dwellers exert a considerable influence on government because they are politically aware, more vocal and better organised, and include elites such as bureaucrats. The result is improved urban living conditions, promoting rural-urban migration (see Chapter 4 above). As discussed in Chapter 4,
migration will take place if there is a perceived differential between urban and rural incomes. These three theories all suggest capital, or wealth, flows from the countryside to the city as a nation develops. However, some researchers are beginning to find evidence of wealth flows in the opposite direction, suggesting that circumstances may influence the direction of wealth flows between urban and rural areas (see Box 6.1).
