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Financial Frictions and Agricultural Productivity Differences

Author

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  • Wei Wang

    (Washington University in St. Louis)

  • Junmin Liao

    (Washington University in St. Louis)

Abstract

This paper explores the role of financial frictions in accounting for agricultural productivity differences. A two-sector general equilibrium model with a subsistence consumption requirement and financial frictions is constructed to explain and quantify the importance of financial frictions in agricultural labor productivity differences. Severer financial frictions decrease the use of intermediate inputs while increase the use of labor inputs. Consequently, labor productivity in agricultural sector is lower and hence, due to a larger employment share in agricultural sector, aggregate labor productivity is also lower. The quantitative results show that a substantial part of observed agricultural employment share and labor productivity differences can be accounted for by financial frictions.

Suggested Citation

  • Wei Wang & Junmin Liao, 2013. "Financial Frictions and Agricultural Productivity Differences," 2013 Meeting Papers 1314, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:1314
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    References listed on IDEAS

    as
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    4. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
    5. Mike Waugh & David Lagakos & Doug Gollin, 2011. "The Agricultural Productivity Gap in Developing Countries," 2011 Meeting Papers 1397, Society for Economic Dynamics.
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