DP14269 Selection and Absolute Advantage in Farming and Entrepreneurship

Author(s):	Francisco Alvarez-Cuadrado, Francesco Amodio, Markus Poschke
Publication Date:	January 2020
Date Revised:	June 2020
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 heterogeneous workers can contribute to explain this fact if comparative and absolute advantage are aligned in agriculture, implying that average productivity in agriculture increases as the agricultural employment share decreases. We empirically investigate the correlation between comparative and absolute advantage using representative household-level panel data from four Sub-Saharan African countries. We exploit information on households who engage in both agriculture and non-farm entrepreneurship -- about a third of the population. We find that more productive farming households are more likely to also engage in non-farm entrepreneurship, allocate more hours to it if they do, and are more likely to enter it if not yet active. All three pieces of evidence imply that comparative and absolute advantage are negatively correlated -- misaligned -- in agriculture, casting doubt on the importance of selection as a root cause of the agricultural productivity gap.