DP13379 Structural Transformation, Industrial Specialization, and Endogenous Growth

Author(s): Paula Bustos, Juan Manuel Castro Vincenzi, Joan Monras, Jacopo Ponticelli
Publication Date: December 2018
Date Revised: May 2019
Keyword(s): Agricultural Productivity, Brazil, Genetically Engineered Soy, labor mobility, Skill-Biased Technical Change
Programme Areas: Labour Economics, International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13379

The introduction of new technologies in agriculture can foster structural transformation by freeing workers who find occupation in other sectors. The traditional view is that this reallocation of workers towards manufacturing can lead to industrial development. However, when workers moving to manufacturing are mostly unskilled, this process reinforces a country's comparative advantage in unskilled-labor intensive industries. To the extent that these industries undertake less innovative activities, this change in industrial specialization can lead to lower long run growth. We highlight this mechanism in an endogenous growth model and provide empirical evidence using a large and exogenous increase in agricultural productivity due to the legalization of genetically engineered soy in Brazil. Our results indicate that improvements in agricultural productivity, while positive in the short-run, can generate specialization in less-innovative industries and have negative effects on manufacturing productivity in the long-run.