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The Role of Agriculture in Aggregate Business Cycles

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  • Jose Maria Da Rocha

    (University of Vigo)

  • Diego Restuccia

    (University of Toronto)

Abstract

There are substantial differences in business cycle fluctuations across countries. These differences are systematically related to the share of agriculture in the economy: Countries with a high share of employment in agriculture feature high fluctuations in aggregate output, low relative volatility of aggregate employment, and low correlation of aggregate output and employment. In addition, agriculture has certain distinctive features over the business cycle: Output and employment in agriculture are more volatile than and not positively correlated with output and employment in the rest of the economy and output and employment are less correlated in agriculture than in non-agriculture. Because of these features, agriculture may play a role in accounting for aggregate business cycles across countries. We calibrate an otherwise standard two-sector indivisible-labor business cycle model with agriculture and non-agriculture to aggregate and sectoral data for the United States. We find that an increase in the employment ratio in agriculture from 2 to 30 percent in our model increases fluctuations in aggregate output by almost 40 percent. This is about 2/3 of the difference in aggregate fluctuations between countries such as Turkey and the United States. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2005.12.002
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 9 (2006)
Issue (Month): 3 (July)
Pages: 455-482

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Handle: RePEc:red:issued:v:9:y:2006:i:3:p:455-482

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Keywords: Business Cycles; Agriculture; Two-sector Model.;

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References

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Cited by:
  1. Loris Rubini, 2013. "Growth, Structural Transformation, and Volatility," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 444, Instituto de Economia. Pontificia Universidad Católica de Chile..
  2. Alessio Moro, 2012. "The Structural Transformation Between Manufacturing and Services and the Decline in the US GDP Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 402-415, July.
  3. Freshwater, David, 2007. "Measuring Farm Net Income To Better Achieve Policy Objectives," Staff Papers, University of Kentucky, Department of Agricultural Economics 42315, University of Kentucky, Department of Agricultural Economics.
  4. Berthold Herrendorf & Richard Rogerson & Ákos Valentinyi, 2013. "Growth and Structural Transformation," NBER Working Papers 18996, National Bureau of Economic Research, Inc.
  5. Cristian - Marian Barbu, 2011. "The Romanian Agriculture - Between Myth And Reality," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 30.
  6. Sylviane Guillaumont Jeanneney & Sampawende Jules Tapsoba, 2011. "Aid and Income Stabilization," Working Papers, HAL halshs-00554289, HAL.
  7. Baran Doda, 2012. "Evidence on CO2 emissions and business cycles," Grantham Research Institute on Climate Change and the Environment Working Papers, Grantham Research Institute on Climate Change and the Environment 78, Grantham Research Institute on Climate Change and the Environment.
  8. Freshwater, David, 2007. "The Economic Well-Being of Farmers As An On-going National Public Policy Issue," Staff Papers, University of Kentucky, Department of Agricultural Economics 42313, University of Kentucky, Department of Agricultural Economics.

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