production of developing world depends around 90% on rural farmer so, they are
accounted as the main actors of rural development (Adams and Vogel, 1990). The
world is rapidly running towards capital intensive technology from labor
intensive technique. The Asian countries are suffering from labor surplus and
constraints of capital accumulation in agriculture for the prevailing agrarian
structure comparing to post-colonial sub-saharan Africa (Bisaliah, 2009).
is an instrument of production. Other than land, any wealth that are used in
further production are considered as capital. Classical and neoclassical
economics regard capital as one of the factors of production alongside the
other factors: land and labor. In Marxian political economy. Capital is the
money used to buy wealth which grows out of the process of circulating itself.
classical economics, Adam Smith (Wealth of Nation, 1776) distinguished fixed
capital from circulating capital. The fixed capital designated physical assets
not consumed in the production of a product (e.g. machine and storage facilities), while the circulating
or working capital referred to physical assets consumed in the process of
production (e.g. raw material and intermediate products).
2.2 Importance of Capital
accumulation is by far the most important contributor to measured growth in
output in all the regions. The developing countries are to get the message that
all types of capital could contribute for increased output and productivity (Bisaliah,2009).
According to (Lewis, 1954; 1955; 1958), in less developed country for
structural change capital accumulation (including knowledge and skill) is
considered as the key aspects of development. Further, development economists
like Rostow (1960) Lewis (1955) Cairn Cross (1966), Meir (1984) and Johnston
(1969) have considered capital accumulation as the most important single factor
in the development process. One of the important lines of arguments Ranson
(1987) has been the advancement of the institutional theory of capital, wherein
evolution of the concept of capital has been traced. Capital formation and
structural transformation of an economic system (Fisher 1939, Johnston 1969) tend
to move together.
types of capital like human capital, social capital and governance,
infrastructure capital, natural capital and knowledge capital and so on are
considered as the drivers of total factor productivity. In detecting the impact
of capital accumulation on economic growth (Bisaliah,2009) treated capital accumulation as an escape
from the ‘vicious circle of poverty’ – a circle of low productivity leading to
a low level of capital Accumulation per head, leading to low productivity
accumulation is the must for economic development especially in agriculture. Though
the agricultural land decreased during this period, the growth performance of
crop production has been very promising. For example rice production increased
from 14 million metric ton in FY 1981 to 32 million metric ton in 2010. This
growth was possible due to increase in capital formation and adoption of new technology
in agriculture (Rahman and Rahman, 2002).
to one popular kind of macro-economic definition in textbooks, capital
formation refers to “the transfer of savings from households and
governments to the business sector, resulting in increased output and economic
The United Nations concept of capital formation
includes tangible reproducible assets destined to be used in future production
(Hooley, 1967). Agricultural implements and machinery land improvements, laying
of new orchards and plantations, irrigation and other constructions, and so on
perhaps could be included as forms of capital formation in agriculture. Based
on a study of capital formation in agriculture of 62 countries, Butzer et al.
(2000) have considered fixed capital in agriculture, capital in orchards (tree
stock), and capital in livestock as components of capital formation in
agriculture. These components account for most of agricultural capital.
of Agricultural Capital in Bangladesh
estimates show from the perspective of Bangladesh there is a contradiction in
growth of overall nation’s capital and growth of capital in agricultural
sector. The agricultural sector is suffering from barely positive growth rate
of capital even though the stock of capital has been increasing at a growing
rate (Rahman and Rahman, 2002). In Bangladesh 70 percent of farmers are small
and marginal farmers and they are not eager in capital formation. Only 29
percent of small and marginal are interested in capital formation but they
generally have too limited investible surplus to allow investment in fixed
assets (Meena, 2014).
and sample survey conducted by BBS, 2016 show that the number of power pumps,
shallow and deep tube wells and also the areas under these technologies have
increased significantly, indicating higher capital formation in this sector.
of Capital Accumulation
to United Nations Organization (2000), economic development of a country
majorly depends on capital accumulation. As most of the production unit are
capital intensive, it becomes a precondition of economic development. The
process of capital accumulation is hampered, if the volume of savings is not
enough to meet adequate investment requirement.
is found as the main determinants of capital accumulation. Savings is regarded
as the source of one-thirds of the net addition to fixed capital and the rest
two-thirds are accumulated from credit. Source of credit is Microfinance
Institutions and banks. On farm income is considered as the most important
factors determining the level of capital accumulation.
with savings and investment there are also some other financial determinants of
capital accumulation. Income, expenditure, agricultural credit, interest rate
of the agricultural credit, agricultural subsidy etc are considered as the financial
determinants of capital accumulation (Ike and Umuedafe, 2013; Rahman and
Both farm and non-farm income has a positive
impact on capital accumulation. Farmers with a high farm income is likely to
accumulate enough capital to increase income. Besides earning from non-farm
activities is more likely to influence their capital accumulation (Ike and
Umuedafe 2013). There is a critical role of credit on capital accumulation that
credit influences not only capital formation but also productivity of labor and
Gross Value of Output (GVO) at the farm level has been clearly spelt out