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: December 2018
Keyword(s): Agricultural Productivity, Brazil, Genetically Engineered Soy, labor mobility, Skill-Biased Technical Change
JEL(s):
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 increase in labor supply in manufacturing can lead to industrial development. However, when workers moving to manufacturing are mostly unskilled, this process reinforces a country's comparative advantage in low-skill intensive industries. To the extent that these industries undertake less R&D, this change in industrial composition can lead to lower long-run growth. We provide empirical evidence of this mechanism 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 productivity in the long-run.