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The agricultural productivity gap: Informality matters

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  • Jat, Rajveer
  • Ramaswami, Bharat

Abstract

The measured agricultural productivity gap (APG) in developing countries typically compares agriculture with the entire non-farm economy, implicitly treating the latter as homogeneous. In developing countries, most non-farm employment is informal, concentrated in small, unregistered enterprises with low productivity. This paper compares the productivity of agriculture to the informal and formal non-farm sectors in India. Using Indian sectoral data from the India KLEMS database linked with nationally representative labor surveys, we decompose the non-farm economy into formal and informal segments and adjust productivity measures for differences in hours worked, human capital, and labor's share of value-added. We find that the APG is almost entirely driven by the small formal non-farm sector. The gap with the informal sector is negligible. Between 63 and 75 % of non-farm workers are in informal employment dominated industries that are not more productive than agriculture. These results reframe the APG as a formal–informal divide.

Suggested Citation

  • Jat, Rajveer & Ramaswami, Bharat, 2026. "The agricultural productivity gap: Informality matters," Journal of Development Economics, Elsevier, vol. 178(C).
    • Handle: RePEc:eee:deveco:v:178:y:2026:i:c:s0304387825001683
    DOI: 10.1016/j.jdeveco.2025.103617
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    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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