Structural Transformation
Paper Session
Sunday, Jan. 5, 2025 1:00 PM - 3:00 PM (PST)
- Chair: Hannes Malmberg, University of Minnesota
Food Security Risk and Structural Transformation
Abstract
Food security risk is an important topic that has long been discussed by development economists and policy makers across countries, while quantitative studies of this issue are rare in the recent macro-development literature. In this paper, we provide a theoretical and quantitative framework to examine the role of food security risk in structural transformation and policies for mitigating food security risk. We provide evidence that poor countries indeed face higher food price volatility and therefore food security risk could be an important impediment to structural transformation of these economies. Quantitatively, a non-trivial portion of the observed agricultural productivity gap may be due to optimal insurance arrangements between urban and rural areas to dampen uncertainties related to volatile agricultural prices. While such arrangements are welfare improving, they will lower real GDP.The Demographic Transition and Structural Transformation
Abstract
We study the effect of the demographic transition on structural transformation. In a panel of countries, higher fertility in past decades reduces the agricultural employment share today. To better understand the mechanisms driving this cross-country relationship, we leverage the quasi-random placement of a program which reduced fertility and early-life mortality in rural Bangladesh. We use rich data that allows us to follow treated and control households 35 years later. We find that the demographic transition slows down structural transformation. Increased labor market and intrahousehold competition drove control households---which were relatively larger due to the program---to send workers to urban areas in search of employment in manufacturing. By contrast, the program led to a 5 percentage point rise in the share of household working hours spent in agriculture and a 3 percentage point fall in manufacturing. Treated farmers adjusted to smaller household sizes by more intensively using labor-substituting technology, capital, and intermediate inputs.Slack and Economic Development
Abstract
Slack – the underutilization of factors of production - varies systematically with development. Using noveland detailed measures of the utilization of labor, capital, and input factors overall from a large representative
sample of firms in rural and urban Kenya, we show that utilization is increasing in firm size, market access,
and local GDP per capita. We argue that indivisibilities of inputs are a key driver of capacity underutilization
in poor economies. We present a model of capacity choice where firms face indivisibilities in at least one input.
Embedded in spatial general equilibrium, the model rationalizes the endogenous emergence of slack in steady
state, and generates important predictions for macroeconomic dynamics in low- and middle-income economies.
We validate the model using reduced-form estimates of the general equilibrium effects of cash transfers from a
large-scale RCT in Western Kenya. We provide transparency and innovate methodologically by pre-registering
parts of our structural estimation routine. Consistent with the model, the data show that (1) supply curves are
highly elastic, (2) output responses to demand shocks are substantially larger for low-utilization sectors and
firms, (3) aggregate inflation in response to the cash transfer shock is low but there exists some inflation in
higher-demand regions. The findings suggest that input indivisibilities are a key friction in developing settings,
rationalizing the existence of large transfer multipliers in poor economies.
JEL Classifications
- O1 - Economic Development
- O4 - Economic Growth and Aggregate Productivity