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Specialization, Economic Development and Aggregate Productivity Differences

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Author Info

  • Michael Waugh

    (Federal Reserve Bank of Minneapolis and New York University)

  • David Lagakos

    (Federal Reserve Bank of Minneapolis and Arizona State University)

Abstract

Cross-country labor productivity differences are large in agriculture and much smaller in non-agriculture. We argue that these relative productivity differences arise when subsistence consumption needs prevent workers in poor countries from specializing in the sector in which they are most productive. We formalize our theory by embedding the Roy (1951) model of ability into a two-sector general-equilibrium growth model in which the agents’ preferences feature a subsistence food requirement. The model predicts that productivity differences in agriculture will be relatively larger than in non-agriculture, even though countries differ only in a sector-neutral efficiency term. A parameterized version of our model suggests that our theory is quantitatively important in explaining why agriculture productivity differences are so large relative to those in non-agriculture.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1248.

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Date of creation: 2009
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Handle: RePEc:red:sed009:1248

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  1. Areendam Chanda & Carl-Johan Dalgaard, 2005. "Dual Economies and International Total Factory Productivity Differences," Macroeconomics 0507003, EconWPA.
  2. Diego Restuccia & Dennis Tao Yang & Xiaodong Zhu, 2003. "Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis," Working Papers diegor-03-01, University of Toronto, Department of Economics.
  3. Todd Schoellman & Lutz Hendricks, 2009. "Student Abilities During the Expansion of U.S. Education, 1950-2000," 2009 Meeting Papers 162, Society for Economic Dynamics.
  4. Simeon Alder, 2009. "In the Wrong Hands: Complementarities, Resource Allocation, and Aggregate TFP," 2009 Meeting Papers 1265, Society for Economic Dynamics.
  5. Au, Chun-Chung & Henderson, J. Vernon, 2006. "How migration restrictions limit agglomeration and productivity in China," Journal of Development Economics, Elsevier, vol. 80(2), pages 350-388, August.
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Cited by:
  1. Tasso Adamopoulos & Diego Restuccia, 2013. "The Size Distribution of Farms and International Productivity Differences," Working Papers tecipa-480, University of Toronto, Department of Economics.
  2. repec:fip:fedreq:y:2011:i:3q:p:329-357:n:vol.97no.3 is not listed on IDEAS
  3. Diego Restuccia, 2011. "Recent developments in economic growth," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 329-357.
  4. Tasso Adamopoulos, 2010. "The Size Distribution of Farms and International Productivity Differences," 2010 Meeting Papers 1145, Society for Economic Dynamics.
  5. Cai, Wenbiao, 2010. "Skill Investment, Farm Size Distribution and Agricultural Productivity," MPRA Paper 26439, University Library of Munich, Germany.

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