American Economic Review: Vol. 103 No. 2 (April 2013)


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Selection, Agriculture, and Cross-Country Productivity Differences

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Lagakos, David, and Michael E. Waugh. 2013. "Selection, Agriculture, and Cross-Country Productivity Differences." American Economic Review, 103(2): 948-80.

DOI: 10.1257/aer.103.2.948


Cross-country labor productivity differences are larger in agriculture than in non-agriculture. We propose a new explanation for these patterns in which the self-selection of heterogeneous workers determines sector productivity. We formalize our theory in a general-equilibrium Roy model in which preferences feature a subsistence food requirement. In the model, subsistence requirements induce workers that are relatively unproductive at agricultural work to nonetheless select into the agriculture sector in poor countries. When parameterized, the model predicts that productivity differences are roughly twice as large in agriculture as non-agriculture even when countries differ by an economy-wide efficiency term that affects both sectors uniformly. (JEL J24, J31, J43, O11, O13, O40)

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Lagakos, David (AZ State U)
Waugh, Michael E. (NYU)

JEL Classifications

J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials
J43: Agricultural Labor Markets
O11: Macroeconomic Analyses of Economic Development
O13: Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
O40: Economic Growth and Aggregate Productivity: General

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