Working Paper: NBER ID: w29834
Authors: Berthold Herrendorf; Richard Rogerson; Kos Valentinyi
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: labor productivity; industrialization; development; sectoral productivity
JEL Codes: E24; O11; O14; O47
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) | Positive level effect on aggregate productivity (O49) |
| Manufacturing productivity growth is correlated with aggregate productivity growth (O49) | Expansion of manufacturing employment does not show similar correlation (L69) |
| No evidence of unconditional convergence in manufacturing productivity (O47) | Productivity levels in manufacturing do not exhibit a tendency to catch up with those of rich countries over time (O49) |
| Productivity gaps in manufacturing are larger than in aggregate productivity (L69) | Challenges the notion that expanding manufacturing employment is essential for development (O14) |