Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis

A decomposition of aggregate labor productivity based on internationally comparable data reveals that a high share of employment and low labor productivity in agriculture are mainly responsible for low aggregate productivity in poor countries. Using a two-sector general-equilibrium model, we show that differences in economy-wide productivity, barriers to modern intermediate inputs in agriculture, and barriers in the labor market generate large cross-country differences in the share of employment and labor productivity in agriculture. The model implies a factor difference of 10.8 in aggregate labor productivity between the richest and the poorest 5% of the countries in the world, leaving the unexplained factor at 3.2. Overall, this two-sector framework performs much better than a single-sector growth model in explaining observed differences in international productivity.