Agricultural Productivity, Human Development, and Manufacturing Employment - Africa

The impact of agricultural productivity growth on the process of structural change, an increase in the share of labor employed in manufacturing, is a much debated topic. One perspective argues that agricultural productivity promotes structural change via its contribution of various resources to the manufacturing sector. Another hypothesis proposed is that agricultural productivity growth will draw resources away from agriculture. This paper hypothesizes that agricultural productivity growth plays a key role in the structural change process, but not necessarily through the mechanisms usually proposed. It is hypothesized here that agricultural productivity growth improves the quality of human labor (measured by the human development index, human capital accumulation, and reductions in infant mortality). In turn, improvements in the quality of human labor make it more profitable to employ labor in manufacturing and thus structural change, measured by the share of manufacturing employment in total employment, increases. These hypotheses are tested using dynamic ordinary least squares (DOLS) techniques utilizing data from seventeen countries in Sub-Saharan Africa. The findings indicate that agricultural productivity growth has a significant positive impact human labor quality as measured by the human development index, human capital accumulation, and reductions in infant mortality. In addition, improvements in the quality of human labor in turn have a significant positive impact on the extent of structural change as measured by the share of manufacturing employment as a share of total employment. In addition, trade, as measured by exports plus imports divided by GDP, also has a significant positive impact on the extent of structural change. Finally, inflation appears to slow the structural change process. The policy implications are straightforward. Agricultural productivity does indeed seem to be important in the process of structural change. Thus development programs involving Sub-Saharan Africa should focus on investment in the development of agricultural technologies that will raise agricultural productivity. In a broader sense, governments should focus investment on improving the overall quality of labor.