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The Missing Food Problem: How Low Agricultural Imports Contribute to International Income and Productivity Differences

  • Trevor Tombe

This paper finds an important relationship between the international food trade and cross-country income and productivity differences. Poor countries have low labour productivity in agriculture relative to other sectors, yet predominantly consume domestically-produced food. To understand these observations, I describe and exploit a general equilibrium model of international trade to: (1) measure sectoral productivity and trade costs across countries; and (2) quantify the impact of low poor-country food imports on international income and productivity gaps. Specifically, I expand on Yi and Zhang [2010] and modify an Eaton-Kortum trade model to incorporate multiple sectors, non-homothetic preferences, and labour mobility costs. With this model, I estimate PPP-adjusted productivity from observed bilateral trade data, avoiding problematic price and employment data in poor countries that direct output-per-worker estimates require. I find reasonable trade barriers and labour mobility costs account for the low poor-country imports despite their low productivity. Through various counterfactual experiments, I quantify how easing import barriers and labour mobility costs increases imports and within-agriculture specialization, shuts down low productivity domestic food producers, and lowers the gap between rich and poor countries. I also find an interaction between domestic labour-market distortions and trade barriers not found in the existing dual-economy literature, which largely abstracts from open-economy considerations. Overall, I account for one-third of the aggregate labour productivity gap between rich and poor countries and for nearly half the gap in agriculture.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-416.

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Length: 49 pages
Date of creation: 26 Nov 2010
Handle: RePEc:tor:tecipa:tecipa-416
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  1. Sergio Rebelo & Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 01/85, International Monetary Fund.
  2. Jing Zhang & Andrei A. Levchenko, 2011. "The Evolution of Comparative Advantage: Measurement and Welfare Implications," 2011 Meeting Papers 302, Society for Economic Dynamics.
  3. Tasso Adamopoulos & Diego Restuccia, 2013. "The Size Distribution of Farms and International Productivity Differences," Working Papers tecipa-494, University of Toronto, Department of Economics.
  4. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 1-44.
  5. Uy, Timothy & Yi, Kei-Mu & Zhang, Jing, 2013. "Structural change in an open economy," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 667-682.
  6. Dietz Vollrath, 2008. "The Dual Economy in Long-run Development," Working Papers 2008-03, Department of Economics, University of Houston.
  7. Ngai, Liwa Rachel & Pissarides, Christopher, 2004. "Structural Change in a Multi-Sector Model of Growth," CEPR Discussion Papers 4763, C.E.P.R. Discussion Papers.
  8. Davin Chor, 2008. "Unpacking Sources of Comparative Advantage: A Quantitative Approach," Working Papers 13-2008, Singapore Management University, School of Economics.
  9. Jeremy Greenwood & Gokce Uysal, 2003. "New Goods and the Transition to a New Economy," Economie d'Avant Garde Research Reports 5, Economie d'Avant Garde.
  10. Córdoba, Juan Carlos & Ripoll, Marla, 2009. "Agriculture and aggregation," Economics Letters, Elsevier, vol. 105(1), pages 110-112, October.
  11. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  12. Gollin, Douglas & Parente, Stephen L. & Rogerson, Richard, 2000. "Farm Work, Home Work And International Productivity Differences," 2000 Annual meeting, July 30-August 2, Tampa, FL 21797, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  13. David Lagakos & Michael E. Waugh, 2013. "Selection, Agriculture, and Cross-Country Productivity Differences," American Economic Review, American Economic Association, vol. 103(2), pages 948-980, April.
  14. Francesco Caselli & Wilbur John Coleman II, 2001. "The U.S. Structural Transformation and Regional Convergence: A Reinterpretation," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 584-616, June.
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  16. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2006. "Estimating trade restrictiveness indices," Policy Research Working Paper Series 3840, The World Bank.
  17. Douglas Gollin & Stephen L. Parente & Richard Rogerson, 2004. "The Food Problem and the Evolution of International Income Levels," Working Papers 899, Economic Growth Center, Yale University.
  18. Brandt, Loren & Zhu, Xiaodong, 2010. "Accounting for China's Growth," IZA Discussion Papers 4764, Institute for the Study of Labor (IZA).
  19. Douglas Gollin & Richard Rogerson, 2010. "Agriculture, Roads, and Economic Development in Uganda," NBER Working Papers 15863, National Bureau of Economic Research, Inc.
  20. Diego Restuccia & Dennis Tao Yang & Xiaodong Zhu, 2003. "Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis," Working Papers diegor-03-01, University of Toronto, Department of Economics.
  21. Cristina Echevarria, 2001. "Non-homothetic preferences and growth," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 9(2), pages 151-171.
  22. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
  23. Douglas A. Irwin, 2010. "Trade Restrictiveness and Deadweight Losses from US Tariffs," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 111-133, August.
  24. Erhan Artuc & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," NBER Working Papers 13465, National Bureau of Economic Research, Inc.
  25. Kawagoe, Toshihiko & Hayami, Yujiro & Ruttan, Vernon W., 1985. "The intercountry agricultural production function and productivity differences among countries," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 113-132.
  26. Gueorgui Kambourov, 2009. "Labour Market Regulations and the Sectoral Reallocation of Workers: The Case of Trade Reforms," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1321-1358.
  27. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 581-608.
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