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The Importance of Specification Choices When Analyzing Sectoral Productivity Gaps

Author

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  • Merfeld, Joshua D.

    (KDI School of Public Policy and Management)

  • Brummund, Peter

    (University of Alabama)

Abstract

A consistent finding in the development literature is that average non-farm labor productivity is higher than average farm labor productivity. These differences in average productivity are sometimes used to promote policies which advance the non-farm sector. In this paper, we analyze the importance of two specification choices when comparing productivity gaps, using detailed household panel data from Malawi. Importantly, we are able to calculate both average revenue products (ARPLs) – similar to most of the sectoral productivity gap literature – as well as marginal revenue products (MRPLs). We show that the choice of productivity measure combined with the choice of production function specification can lead to different sectoral productivity rankings. MRPLs from translog production functions suggest the household farm sector is more productive than the household non-farm sector, while MRPLs from a Cobb-Douglas and ARPLs from both a translog and a Cobb-Douglas find the opposite ranking.

Suggested Citation

  • Merfeld, Joshua D. & Brummund, Peter, 2021. "The Importance of Specification Choices When Analyzing Sectoral Productivity Gaps," IZA Discussion Papers 14864, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp14864
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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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