Global Value Chains in Agriculture and Structural Transformation

Does the extent of participation in global agriculture value chains accelerate structural transformation in countries? The rise of global value chains (GVCs) in agriculture has been a salient feature of the world economy over recent years. Despite their importance for the world economy, it is, however, unclear whether participation in GVCs leads the structural transformation--that is, the move from an economy primarily based on agriculture to an economy primarily based on manufacture, and then on service. In this paper, I investigate the impact of the participation of GVCs in the agricultural sector on structural transformation in countries by using cross-country panel data for 183 countries from 1990 to 2013. By using country-fixed effects, I find that in response to greater agricultural value chains participation, manufacturing employment remains stable, but employment in the services sector increases. In short, modern-day developing economies are leapfrogging manufacturing to directly develop their services sector through GVCs in agriculture. This result is strongly and significantly robust to all different model specifications with year fixed effects, regional-specific fixed effects, and time monotonicity. Also, by using alternative measures of structural transformation such as GDP shares by sectors or female employment shares, the results are still strongly robust. I measure the extent of agricultural GVCs by adopting the method Wang et al. (NBER, 2013) at the country level. I control for agricultural trade policies, domestic policy to agriculture, agricultural land areas, population, urban population growth, and demographic structure of countries. This is an important result as the evidence that agricultural GVCs participation has played a significant role in economic development in the world.