The Green Revolution, Structural Transformation, and Economic Development via Market Mechanisms

Building on the two-sector growth model of Matsuyama (1992), this paper explores how the Green Revolution contributed to structural transformation through market-based price adjustments. To address the endogeneity of relative agricultural prices, we employ shiftshare (Bartik) instrumental variables drawing on the innovative methodologies and datasets developed by Gollin et al. (2021) and Huang (2024). We further construct a novel projected-TFP instrument to isolate realized agricultural productivity gains attributable to the Green Revolution. Our empirical findings show that the Green Revolution significantly increased agricultural productivity, lowered agricultural prices, and facilitated structural transformation when market mechanisms function effectively. Importantly, institutional quality critically shapes this price-transmission mechanism: weak institutions distort the transmission of agricultural productivity gains into relative prices and thereby impede structural transformation. To quantify these distortions and the associated misallocation, we construct a price-based misallocation (PBM) index that captures institutionally mediated distortions in relative-price adjustment. Overall, our findings show that the benefits of the Green Revolution depend not only on technological progress itself but also on the institutional environment through which productivity gains are transmitted into market prices. These findings highlight the importance of institutional reforms and targeted policies to reduce distortions and maximize the gains from agricultural innovation.