The theory of unequal exchange between center and periphery is extended to provide an interpretation of rural underdevelopment in Latin America. It serves to explain both the causality of agricultural stagnation under dominance of the latifundio and the economic functionality of the subsistence sector where rural poverty is concentrated. The contradictions of the subsistence sector as a purveyor of cheap labor to the commercial sector of the economy imply population growth and ecological destruction that reinforce rural misery. This theory provides a framework to analyze the political economy of rural development programs. Land reform and small farmer rural development projects are discussed in this context.
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Alain de Janvry (1975) studied this question.