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Agricultural productivity, the real effective exchange rate, and structural change: Some evidence from Africa

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  • Richard Grabowski
  • Sharmistha Self

Abstract

Agriculture is thought to play a number of roles in the early development process. All of these roles involve fostering non‐agricultural development, in particular manufacturing. It is argued in this paper that agriculture plays a role that has hitherto been ignored. Specifically, if agricultural labor productivity increases faster than manufacturing labor productivity, the real effective exchange rate will depreciate. This depreciation of real effective exchange rate occurs because in very poor countries agriculture makes up the dominant share of both GDP and employment. The depreciation also makes it easier for a country to expand the production of tradables relative to nontradables, with manufacturing being the main tradable. This proposition, which as agricultural labor productivity increases relative to manufacturing labor productivity the real effective exchange rate depreciates, is tested using data drawn from 10 sub‐Saharan African countries.

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  • Richard Grabowski & Sharmistha Self, 2020. "Agricultural productivity, the real effective exchange rate, and structural change: Some evidence from Africa," Review of Development Economics, Wiley Blackwell, vol. 24(1), pages 31-44, February.
    • Handle: RePEc:bla:rdevec:v:24:y:2020:i:1:p:31-44
    DOI: 10.1111/rode.12640
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    Cited by:

    1. Duncan, Nicolette & de Silva, Sanjiv & Conallin, John & Freed, Sarah & Akester, Michael & Baumgartner, Lee & McCartney, Matthew & Dubois, Mark & Senaratna Sellamuttu, Sonali, 2021. "Fish for whom?: Integrating the management of social complexities into technical investments for inclusive, multi-functional irrigation," World Development Perspectives, Elsevier, vol. 22(C).

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