Essays on agriculture in macro-development

Abstract

This dissertation consists of three chapters. In the first chapter, I document that agricultural output prices don't vary across countries with GDP per worker, either in dollar terms or relative to manufacturing. I interpret this fact in a closed-economy, general-equilibrium model of structural change allowing for both income and price effects. The model features three sectors---agriculture, manufacturing, and services---and thus also features multiple dimensions of structural change. Using this model, I consider my fact's implications for the relative importance of income and price effects as drivers of sectoral reallocation, focusing on the transition from agriculture to manufacturing. Within the goods sector of the economy, as the relative price between agriculture and manufacturing doesn't vary with income, the model finds income effects to be the primary driver of structural change. In the second chapter, I highlight two facts: 1, the price of agricultural output doesn't vary systematically with GDP per worker; and 2, at the same time, the vast majority of agricultural expenditures are produced domestically, especially in poor countries. In many popular models of international trade, these two facts jointly have strong implications for agricultural trade costs. I study these implications in an Eaton-Kortum model, as well as the implications for the trade elasticity. Under the literature-standard elasticity of 4, observed prices and trade shares imply import costs for agricultural products are roughly 57\% higher in poor countries versus rich ones. In contrast, direct estimates of trade costs have suggested import costs 3-10 times higher in poor countries. To be consistent with the price and trade data, import costs of that level require a trade elasticity of 2 or lower, well below the values estimated by the literature. My findings suggest agricultural trade costs are systematically higher in poor countries than in rich ones, but by less than suggested by previous direct trade cost estimates. Finally, in the third chapter, I and coauthors take a macroeconomic approach to analyze the role of agriculture in development, noting that developing countries employ a very large share of their workforce in agriculture, a sector in which their labor productivity is particularly low. We construct a new database with systematic measures of inputs and outputs of agricultural production around the globe. The data exhibits strong neoclassical features: going from poor to rich countries, capital and intermediate input prices decline dramatically relative to labor prices; concurrently, capital and intermediate input use in agriculture increases by a factor of 300--800 relative to labor. Input intensification accounts for a bit less than two-thirds of the agricultural labor productivity gap between the poorest and richest countries. Our observations are well explained by an aggregate agricultural production function with input substitutabilities significantly above unity. On the demand side, standard non-homothetic preferences accurately capture how the expenditure share of agricultural goods varies across the development spectrum. We incorporate our findings into a closed-economy general-equilibrium model with minimal distortions, showing that non-agricultural TFP differences play a much more important role than agricultural TFP differences in explaining income differences.