Effects of Green Revolution (GR) on Income:

Here we assume that GR is technological and biological. Whether GR is labor using or labor displacing depends on the net effect of the forces released by two different kinds of technical progress. We will analyze the impact on cost of production. We will see whether the cost rise due to biological innovations are greater than or less than the cost reduction due to mechanical innovations. Before the innovation the cost are TC₁, and after they are

TC₂. It is clear that they are lower with the new techniques than the old techniques.

Assume that farmers want to maximize profit. Then the equilibrium will be attained where profits are maximum. TC, TR and total output are given by Q₁A, Q₁B and OQ₁, before the introduction of new technology. With the new technology or techniques TR rise while TC fall and at equilibrium net profit is CD which is much greater than AB, It is clear that the new technology raises the net income or profit of the farmers It is shown in Fig.

Diagram/Figure:

Effects of Green Revolution on Relative Factor Share:

As the farmers release the opportunity of raising their income through adoption of new technology, the absolute income of all factors should rise as more inputs are used for increasing production. However the relative changes in factors shares depend upon number of factors like:

(i) Neutrality or Non-neutrality technical progress.

(ii) Changes in the sum of production elasticities under technical progress.

(iii) Changes in capital labor ratio after the introduction of innovations in agriculture.

In order to understand the process of changes in factors shares we use the following Cobb-Douglas Production Function (CDPF).

Q = AL^a (B₁)^b (B₂)^c (C₁)^d (C₂)^e

Where Q = Crop production, L = Land, B₁ = Human Labor, B₂= Bullock Labor, C₁ = Machinery and Equipment,

C₂ = Non-mechanical Inputs e.g., better seeds, fertilizers etc. and a, b, c, d, e = Relevant partial elasticities.

In CDPF the ratio of partial elasticities shows the relative factor shares between inputs. We know that in CDPF elasticity of substitution is one. Thus it is independent of returns to scale. Changes in factor shares are observed only when an extra new input either as substitute or as complement to current inputs is used. We assume that increasing use of C₁ and C₂ imply a technical progress. Hence the new production function is as:

Q¹ = A¹L^a1 (B₁)^b1 (B₂)^c1 (C₁)^d1 (C₂)^e1

It has been observed that C₁ is capital using or labor displacing. While C₂ is capital saving and labor using. Due to technical progress there is a contradictory impact on labor. Therefore, we will have to estimate the values of b, b¹ , d, d¹, e and e¹.

We should expect a fall in labor shares with reference to C₁ (a labor - displacing input), when b¹/d¹ > b/d. Also, when C₂ is a complementary input (e.g., new seeds, fertilizers), the share of labor in NI will increase. In such case b¹/e¹ > b/e.

More formally, if the final impact of green revolution is to lower the share of labor in total income, the net effect should be as follows:

In the large number of areas average income and real wages have gone up due to green revolution for most classes of farmers. Large fanners have benefited relatively more than medium and small farmers. To measure the income distribution impact of the relative rise in output on low or high income (Y) farms, we need to know about the price elasticity of demand. Such elasticity can be either greater or less than unity. Hence we may have:

It is clear that whether demand is price elastic and increase in crop production will increase total revenues depend upon the degree of elasticity of demand. The rise in supply more than demand will lower the price per unit of a crop. If the small farmer fails to raise the production, his total revenue will decrease. Again if he fails to change the use of traditional inputs, his cost will remain the same and he will experience a fall in net income. However even a low crop price may increase total income of the large farmers. Though his total cost will rise due to rise in use of inputs, the profit maximizing farmers will purchase inputs up to the point where MC = MR. His profits will increase. Hence income differential between the large and small farmers will widen.

If the demand curve is price inelastic a rise in supply reduces both farm price and total farm income. If the small fanners fail to contribute to increase in supply or lower the level of input utilization, their aggregate income and profit fall. However, the large farmers do not necessarily experience a fall in total income in this case. This will also widen the gap between different classes of farmers.

Now we conclude that technical progress due to green revolution may enlarge the income differentials between the adopters and non-adopters. But ultimately, the traditional farmers will also get the gains through adoption of new technology. Then both the small farmers and the big farmers should invest -in chemical fertilizers. In this way, the productivity of the land will rise and every type of farmer will reap the gains from GR.