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  5. Macroeconomics of Development
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Macroeconomics of Development

Paper Session

Saturday, Jan. 7, 2023 2:30 PM - 4:30 PM (CST)

Hilton Riverside, Durham
Hosted By: Econometric Society
  • Chair: Gustavo Moreira de Souza, Federal Reserve Bank of Chicago

Nutrition Demand, Subsistence Farming, and Agricultural Productivity

Stepan Gordeev
,
University of Rochester

Abstract

In many of the poorest countries, agriculture is unproductive and subsistence farming is widespread. I propose nutrition demand as a mechanism that drives the production decisions of subsistence farmers and ultimately contributes to low aggregate agricultural productivity. I explore this mechanism in a model of farm-operating households facing explicit caloric needs and costly domestic trade, and test the model's predictions on Malawian household-level data. In the model and in the data, the smallest farmers focus their consumption on obtaining calories and specialize their production in unsold staple crops; medium farmers diversify both their diet and their subsistence production; the largest farmers shift consumption to purchased goods by producing and selling marketable farm products. I quantify the aggregate implications of this farm-level product choice using the model. It suggests that lowering trade frictions enough for the average share of output sold by farmers to reach even 50% would make the country's agricultural sector 42% more productive. Half of this increase is caused by the mechanically reduced erosion of output, and the other half by a better alignment of individual farmers' product choice with their comparative advantage rather than their family's nutritional needs or food preferences.

Multinationals and Structural Transformation

Vanessa Alviarez
,
Inter-American Development Bank
Cheng Chen
,
Clemson University
Nitya Pandalai-Nayar
,
University of Texas-Austin
Liliana Varela
,
London School of Economics
Kei-Mu Yi
,
University of Houston
Hongyong Zhang
,
Research Institute of Economy, Trade and Industry

Abstract

We study the role of multinationals (MNCs) in facilitating firm-level and aggregate structural
transformation. Using a stylized model of multinational production and trade, we show that an
inward multinational liberalization in the manufacturing sector raises employment in host country
firms, and decreases manufacturing employment, while also raising services employment, in the
parent firms. We also show the conditions under which aggregate structural transformation
occurs. We test the model's firm-level predictions by using confidential microdata from Japan.
We study the response of Japanese MNC parents and of their affiliates in China to an exogenous
change in China's openness to foreign direct investment (FDI). We find that in industries where inward FDI was encouraged, Japan MNC's affiliates in China experienced increases in their employment. We also find that MNC parents in the encouraged industries experienced decreases in home country manufacturing employment and increases in home country services and R&D employment. Finally, using microdata for several advanced and middle-income countries, we decompose the change in overall manufacturing employment shares into MNC and non-MNC components. We find a significant role for MNCs across all countries, suggesting the mechanism we highlight is an important global driver of structural transformation.

The Macroeconomic Impact of Agricultural Input Subsidies

Karol Mazur
,
Peking University
Laszlo Tetenyi
,
Bank of Portugal

Abstract

We quantitatively evaluate general equilibrium effects of input subsidy programs in agriculture. First, we present cross-country evidence that staple-targeting subsidy programs improve both the productivity of staples and food security, increase both the relative price of cash crops and the share of land devoted to their cultivation, and increase the share of people employed in manufacturing. We confirm these findings in micro-data from Malawi. Then, we build a dynamic general equilibrium model with financial frictions, transaction costs, subsistence consumption constraints and heterogeneous agents making occupational choice between working as labourers in urban areas, and as staple or cash crop farmers in rural areas. Quantifying the model for the case of African input subsidy programs we show the importance of financial development and infrastructure on the optimal policy.

Rural-Urban Migration, Structural Transformation, and Housing Markets in China

Carlos Garriga
,
Federal Reserve Bank of St. Louis
Aaron Hedlund
,
University of Missouri
Yang Tang
,
Nanyang Technological University
Ping Wang
,
Washington University in St. Louis

Abstract

This paper investigates the interrelationship between urbanization, structural transformation, and the post-2000 Chinese housing boom through the lens of a dynamic spatial equilibrium model that features migration and a rich housing market structure with mortgages. Urbanization and structural transformation emerge as key drivers of China’s house price boom, while at the same time rising house prices impede these forces of economic transition. Policies to boost urbanization can be undone by the endogenous price response. Land supply expansion ameliorates this negative feedback. Overall, housing markets powerfully shape the path of economic development.
JEL Classifications
  • O1 - Economic Development