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The Role of Agriculture in Aggregate Business Cycles

Author

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  • Jose Maria Da Rocha

    (University of Vigo)

  • Diego Restuccia

    (University of Toronto)

Abstract

There are substantial differences in business cycle fluctuations across countries. These differences are systematically related to the share of agriculture in the economy: Countries with a high share of employment in agriculture feature high fluctuations in aggregate output, low relative volatility of aggregate employment, and low correlation of aggregate output and employment. In addition, agriculture has certain distinctive features over the business cycle: Output and employment in agriculture are more volatile than and not positively correlated with output and employment in the rest of the economy and output and employment are less correlated in agriculture than in non-agriculture. Because of these features, agriculture may play a role in accounting for aggregate business cycles across countries. We calibrate an otherwise standard two-sector indivisible-labor business cycle model with agriculture and non-agriculture to aggregate and sectoral data for the United States. We find that an increase in the employment ratio in agriculture from 2 to 30 percent in our model increases fluctuations in aggregate output by almost 40 percent. This is about 2/3 of the difference in aggregate fluctuations between countries such as Turkey and the United States. (Copyright: Elsevier)

Suggested Citation

  • Jose Maria Da Rocha & Diego Restuccia, 2006. "The Role of Agriculture in Aggregate Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 455-482, July.
  • Handle: RePEc:red:issued:v:9:y:2006:i:3:p:455-482
    DOI: 10.1016/j.red.2005.12.002
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    References listed on IDEAS

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    Cited by:

    1. Alessio Moro, 2012. "The Structural Transformation Between Manufacturing and Services and the Decline in the US GDP Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 402-415, July.
    2. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941 Elsevier.
    3. repec:eee:eecrev:v:102:y:2018:i:c:p:240-279 is not listed on IDEAS
    4. Loris Rubini, 2013. "Growth, Structural Transformation, and Volatility," Documentos de Trabajo 444, Instituto de Economia. Pontificia Universidad Católica de Chile..
    5. Bragagnolo, Cassiano & Barros, Geraldo Sant'Ana de Camargo, 2013. "Ciclos econômicos na agricultura brasileira," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 67(2), June.
    6. S. Guillaumont Jeanneney & S. J‐A. Tapsoba, 2012. "Aid and Income Stabilization," Review of Development Economics, Wiley Blackwell, vol. 16(2), pages 216-229, May.
    7. Alessio Moro, 2015. "Structural Change, Growth, and Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 259-294, July.
    8. Freshwater, David, 2007. "Measuring Farm Net Income To Better Achieve Policy Objectives," Staff Papers 42315, University of Kentucky, Department of Agricultural Economics.
    9. Cristian - Marian Barbu, 2011. "The Romanian Agriculture - Between Myth And Reality," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 1-30.
    10. Freshwater, David, 2007. "The Economic Well-Being of Farmers As An On-going National Public Policy Issue," Staff Papers 42313, University of Kentucky, Department of Agricultural Economics.
    11. repec:fgv:epgrbe:v:67:n:2:a:1 is not listed on IDEAS
    12. Baran Doda, 2012. "Evidence on CO2 emissions and business cycles," GRI Working Papers 78, Grantham Research Institute on Climate Change and the Environment.

    More about this item

    Keywords

    Business Cycles; Agriculture; Two-sector Model.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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