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Specialization, Economic Development and Aggregate Productivity Differences

Author

Listed:
  • Michael Waugh

    (Federal Reserve Bank of Minneapolis and New York University)

  • David Lagakos

    (Federal Reserve Bank of Minneapolis and Arizona State University)

Abstract

Cross-country labor productivity differences are large in agriculture and much smaller in non-agriculture. We argue that these relative productivity differences arise when subsistence consumption needs prevent workers in poor countries from specializing in the sector in which they are most productive. We formalize our theory by embedding the Roy (1951) model of ability into a two-sector general-equilibrium growth model in which the agents’ preferences feature a subsistence food requirement. The model predicts that productivity differences in agriculture will be relatively larger than in non-agriculture, even though countries differ only in a sector-neutral efficiency term. A parameterized version of our model suggests that our theory is quantitatively important in explaining why agriculture productivity differences are so large relative to those in non-agriculture.

Suggested Citation

  • Michael Waugh & David Lagakos, 2009. "Specialization, Economic Development and Aggregate Productivity Differences," 2009 Meeting Papers 1248, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:1248
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    File URL: https://economicdynamics.org/meetpapers/2009/paper_1248.pdf
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    References listed on IDEAS

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    1. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    2. Todd Schoellman & Lutz Hendricks, 2009. "Student Abilities During the Expansion of U.S. Education, 1950-2000," 2009 Meeting Papers 162, Society for Economic Dynamics.
    3. Simeon Alder, 2009. "In the Wrong Hands: Complementarities, Resource Allocation, and Aggregate TFP," 2009 Meeting Papers 1265, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Tasso Adamopoulos & Diego Restuccia, 2014. "The Size Distribution of Farms and International Productivity Differences," American Economic Review, American Economic Association, vol. 104(6), pages 1667-1697, June.

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