Global Agricultural Value Chains and Structural Transformation

Abstract

Can modern-day developing economies transform their economies by participating in global value chains (GVCs)? The rise of global value chains (GVCs) has changed the nature of production around the world over recent years. Conventionally, companies used to produce goods primarily in one country. That has all changed. Modern-day, a single finished product often results from manufacturing and assembly in multiple countries, with each step in the process adding value to the final product. Although the transition out-of-agriculture is an important aspect of economic development in developing countries, it is unclear whether participation in global value chains (GVCs) fosters a structural transformation ─ the process whereby economic activity is reallocated from agriculture to manufacturing, and then from manufacturing to the services sector. In this paper, I investigate the effect of the participation in agricultural GVCs on the structural transformation. Using multi-region input-output data to measure GVC participation and crosscountry data for 183 countries for the period 1990-2013. I find that in response to greater agri-food global value-chain participation, modern-day agrarian economies are leapfrogging manufacturing to directly develop their services sector, which runs counter to conventional structural transformation narratives. This result is strongly robust to (i) various alternative specifications (i.e., regional-year fixed effects, a linear time trend, country-specific time trends, regional-specific time trends, all along with country fixed effects and country-specific year fixed effects), (ii) an alternative measure of structural transformation (GDP and employment shares), and (iii) an alternative measure of GVCs. By slicing the data, I also find that the move of structural transformation is statistically unclear in low-income countries. This is important for agri-food industrial, trade, and development policy by providing original evidence that believing in “onesize- fits-all” might draw the wrong policy recommendations for different countries in the context of global value chains.