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Specialization, Economic Development and Aggregate Productivity Differences

Author

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  • 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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    References listed 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.
    2. Yousef Daoud & Belal Fallah, 2016. "The differential impact of employment in agriculture on wages for rural and non-rural Palestine," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-19, December.

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