Working Paper: CEPR ID: DP17085
Authors: Akos Valentinyi; Richard Rogerson; Berthold Herrendorf
Abstract: Moving labor from agriculture to manufacturing - "industrialization" - is often viewed as essential for the development of poor countries. We present new evidence on the channels through which industrialization can help poor countries close the productivity gap with rich countries. To achieve this, we leverage recent data releases by the Groningen Growth and Development Centre and build a new dataset of comparable labor productivity levels in agriculture and manufacturing for 64 mostly poor countries during 1990--2018. We find two key results: (i) cross-country labor productivity gaps in manufacturing are larger than in the aggregate and (ii) there is no tendency for manufacturing labor productivity to converge. While these results challenge the notion that expanding manufacturing employment is essential for the development of today's poor countries, we also find that higher labor productivity growth in manufacturing is associated with higher labor productivity growth in the aggregate and in several key sectors.
Keywords: Agriculture; Convergence; Industrialization; Manufacturing; Productivity Gaps; Spillovers
JEL Codes: O47; Q10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Moving labor from agriculture to manufacturing (F16) | does not necessarily close the productivity gap with rich countries (O49) |
| Moving labor from agriculture to manufacturing (F16) | may not be essential for development (I15) |
| Reallocating labor to sectors other than manufacturing (O14) | could yield greater productivity gains (O49) |
| Higher labor productivity growth in manufacturing (O49) | associated with higher aggregate productivity growth (O49) |
| Manufacturing employment expansion (L69) | not a key driver of productivity growth (O49) |
| No unconditional convergence in manufacturing productivity (O47) | challenges the notion that manufacturing is key for productivity growth (O49) |