Working Paper Department of Economics, University of Pittsburgh
Resumen
In spite of its low productivity, agriculture employs most of the labor force in countries in the lower part of the world income distribution. Moreover, agriculture differs from other activities in its intensive use of land. We show that ignoring agriculture, as most one-sector aggregate models do, gives rise to substantially biased results regarding the sources of cross-country income differences. We first show that standard Solow residuals underestimate underlying productivity differences across countries. Specifically, Solow residuals are less disperse than both agricultural and nonagricultural TFPs. More importantly, we show that the large labor productivity gap between agriculture and nonagriculture is not accounted for by migration costs or schooling differences. Instead, the gap seems to be explained by the particularly low quality of human capital in rural areas. This finding implies that most of the income dispersion across countries is not due to TFP differences but to differences in factor endowments, particularly human capital in rural areas.
