Technology Adoption, Capital Deepening, and International Productivity Differences

Cross-country differences in capital intensity are larger in agriculture than in the non-agricultural sector. I build a two-sector model featuring technology adoption in agriculture. As the economy develops, farmers gradually adopt modern capital-intensive technologies to replace traditional labor-intensive technologies, as is observed in the U.S. historical data. Using this model, I find that technology adoption is key to explaining lower agricultural capital intensity and labor productivity in poor countries. By allowing for technology adoption, my model can explain 1.56-fold more in rich-poor agricultural productivity differences. I further show that land misallocation impedes technology adoption and magnifies productivity differences.