DeFiPP Seminar - Timo Boppart - University of St. Gallen

The Macroeconomics of Intensive Agriculture (with Patrick Kiernan, Per Krusell, and Hannes Malmberg)

Abstract:

In poor countries, the agricultural sector is large, uses few inputs per worker, and is unproductive, even relative to the local economy. We jointly study these phenomena using a neoclassical two-sector model. To inform our choice of an agricultural production function, we draw on micro and macro sources to construct a cross-country database of agricultural input use and prices. Using our framework, we separately analyze the consequences of closing the sectoral TFP gap in agriculture and non-agriculture between a poor country and the US. We find that closing the agricultural TFP gap reduces GDP per worker gap from a factor of 40 only to a factor of 14.1, whereas closing the non-agricultural TFP gap reduces the GDP per worker gap to 2.5. This finding is in stark contrast to those of simple decomposition exercises, which suggest that closing agricultural labor productivity gaps could dramatically reduce income differences. The difference emerges from general equilibrium forces. In general equilibrium, agricultural TFP improvements have diminishing marginal returns since rising incomes and falling agricultural prices reduce the importance of the agricultural sector. In contrast, non-agricultural TFP improvements have increasing marginal returns, as income effects and agricultural input intensification both work to increase the importance of the non-agricultural sector.

Contact : Christian Kiedaisch - christian.kiedaisch@unamur.be
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