Agricultural Productivity and Industrial Growth. Evidence from Brazil

Jacopo Ponticelli, Bruno Caprettini and Paula Bustos ()

No 895, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We study the effects of agricultural productivity on industrial development. Productivity growth in agriculture can speed up industrial growth through three channels. First it releases labor, a factor intensively used in manufacturing. Second, it generates income, increasing demand for manufacturing goods. Third, it might increase savings that are channeled to finance industrial projects. However, Matsuyama (1992) notes that some of the positive effects of agricultural productivity on industrialization occur only in closed economies, while in open economies a comparative advantage in agriculture can slow down industrial growth. We provide direct empirical evidence on the impact of a new agricultural technology on industrial growth by studying the effects of the widespread adoption of genetically modified soybean seeds on Brazilian manufacturing firms. To establish causality, we exploit exogenous differences in soil and weather characteristics across geographical areas leading to a differential impact of the new technology on yields.

Date: 2012
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