Selection, Agriculture and Cross-Country Productivity Differences

Abstract

Cross-country labor productivity differences are larger in agriculture than in non-agriculture. We propose a new explanation for these patterns in which the self-selection of heterogeneous workers determines sector productivity. We formalize our theory in a general equilibrium Roy model with preferences featuring a subsistence food requirement. In the model, subsistence requirements induce workers that are relatively unproductive at agriculture work to nonetheless select into the agriculture sector in poor countries. When parameterized, the model predicts that agriculture productivity differences are twice as large as those in non-agriculture even when economies differ by an economy-wide efficiency term that affects both sectors uniformly.