DP14269 Selection and Absolute Advantage in Farming and Entrepreneurship

Author(s): Francisco Alvarez-Cuadrado, Francesco Amodio, Markus Poschke
Publication Date: January 2020
Date Revised: February 2021
Keyword(s): Africa, agricultural productivity gap, entrepreneurship, selection
JEL(s): J24, J31, J43, L26, O11, O13, O40
Programme Areas: Development Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14269

Output per worker is lower in agriculture than in other sectors, and relatively more so in poor countries. Sorting of workers can explain this if comparative and absolute advantage in agriculture are positively correlated. We investigate this correlation using representative household-level panel data from four African countries. We exploit information on households who engage in both agriculture and non-farm entrepreneurship -- about 1/3 of the population. More productive farming households are more likely to pursue entrepreneurship, allocate more hours to it, and are more likely to enter over time. This implies that agricultural comparative and absolute advantage are negatively correlated.