Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis

A decomposition of aggregate labor productivity based on internationally comparable data from FAO and Penn World Tables reveals that high labor shares and low productivity in agriculture are mainly responsible for poor countries<92> current position in the world income distribution. Using a two-sector general equilibrium model, we argue that di<AE>erences in total factor productivity (TFP) and barriers to using modern intermediate inputs in agricultural production can largely account for the observed cross-country di<AE>erences in both the labor share and productivity in agriculture. Furthermore, our model with agriculture can account for 89% of the observed aggregate labor productivity di<AE>erences across countries, performing much better than a one-sector growth model with the same exogenous di<AE>erences in TFP.