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Does agricultural growth have a causal effect on manufacturing growth?

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  • Shifa, Abdulaziz B.

Abstract

Though the role of agricultural growth for manufacturing growth has been at the center of the discourse on economic development, empirically identifying the causal effect of agricultural growth on manufacturing growth has remained illusive for the correlation between the two doesn't necessarily imply causality. This paper attempts to overcome the identification problem. Since agriculture is heavily dependent on the weather, random weather variations are used as instruments to identify the causal impact of agricultural growth on manufacturing growth. Results show that agricultural growth has a significant positive impact on manufacturing growth. The impact is higher the higher is agriculture's share in the economy (as measured by GDP and employment share). For example, in an economy with 50% of agricultural GDP, a 1% increase in agricultural output increases manufacturing output by about 1%.

Suggested Citation

  • Shifa, Abdulaziz B., 2011. "Does agricultural growth have a causal effect on manufacturing growth?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 116003, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaae11:116003
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    File URL: http://purl.umn.edu/116003
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    References listed on IDEAS

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    1. Majumdar, Sumon & Mani, Anandi & Mukand, Sharun W., 2004. "Politics, information and the urban bias," Journal of Development Economics, Elsevier, vol. 75(1), pages 137-165, October.
    2. Ardeni, Pier Giorgio & Freebairn, John, 2002. "The macroeconomics of agriculture," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 28, pages 1455-1485 Elsevier.
    3. John Laitner, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 545-561.
    4. Kym Anderson & Will Martin, 2009. "Distortions to Agricultural Incentives in Asia," World Bank Publications, The World Bank, number 2611.
    5. Richard Tiffin & Xavier Irz, 2006. "Is agriculture the engine of growth?," Agricultural Economics, International Association of Agricultural Economists, vol. 35(1), pages 79-89, July.
    6. repec:hoo:wpaper:e-92-3 is not listed on IDEAS
    7. Valenzuela, Ernesto & Wong, Sara & Sandri, Damiano, 2007. "Distortions to Agricultural Incentives in Ecuador," Agricultural Distortions Working Paper 48394, World Bank.
    8. Bruce L. Gardner, 2000. "Economic Growth and Low Incomes in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(5), pages 1059-1074.
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    More about this item

    Keywords

    Agricultural Growth; Manufacturing Growth; Instrumental variable.; Community/Rural/Urban Development; International Development; O14; O25; Q10;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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