Capital Obsolescence and Agricultural Productivity

This article argues that accounting for capital-embodied technology greatly increases the importance of capital in explaining cross-country differences in agricultural labor productivity. To do so, we draw on a novel data set of agricultural capital prices. We document that new capital is more expensive in richer countries, both in absolute terms and relative to old capital. A model of endogenous adoption of capital of different quality links these price differences to the path of capital-embodied technology. In particular, our model recovers the level of embodied technology from the price of new capital and the growth rate of embodied technology from the price of new capital relative to old capital. We then measure the stocks of quality-adjusted capital in agriculture for a sample of 16 countries at different stages of development. We find that adjusting for differences in quality almost doubles the importance of capital in accounting for cross-country differences in agricultural labor productivity: from 21% to 37%. In addition, improvements in capital quality have been an important source of agricultural labor productivity growth over the past 25 years, accounting for 21% and 35% of the productivity growth in poor and rich countries, respectively.