Abstract
Several scholars argue that high agricultural productivity can retard industrial development because it draws resources toward the comparative advantage sector, agriculture. However, agricultural productivity growth can increase savings and the supply of capital, generating an expansion of the capital-intensive sector, manufacturing. We highlight this mechanism in a simple model and test its predictions in the context of a large and exogenous increase in agricultural productivity due to the adoption of genetically engineered soy in Brazil. We find that agricultural productivity growth generated an increase in savings, but these were not reinvested locally. Instead, there were capital outflows from rural areas. Capital reallocated toward urban regions, where it was invested in the industrial and service sectors. The degree of financial integration affected the speed of structural transformation. Regions that were more financially integrated with soy-producing areas through bank branch networks experienced faster growth in nonagricultural lending. Within these regions, firms with preexisting relationships with banks receiving funds from the soy area experienced faster growth in borrowing and employment. JEL Codes: O14, O16, O41, F11.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1037-1094 |
| Number of pages | 58 |
| Journal | Quarterly Journal of Economics |
| Volume | 135 |
| Issue number | 2 |
| DOIs | |
| State | Published - May 1 2020 |
Funding
∗We thank the editor, Pol Antràs, and five anonymous referees. We received valuable comments from Abhijit Banerjee, Mark Rosenzweig, Joseph Kaboski, Nicola Gennaioli, Douglas Gollin, David Lagakos, Gregor Matvos, Marti Mestieri, Manuel Arellano, Josep Pijoan Mas, Ivan Fernandez-Val, Farzad Saidi, Kjetil Storesletten, Jaume Ventura, Fernando Broner, Sérgio Mikio Koyama, Clodoaldo Annibal, Fani Cymrot Bader, Raquel de Freitas Oliveira, Tony Takeda, Guilherme Yanaka, Willians Yoshioca, Toni Ricardo Eugenio dos Santos, and seminar participants at various universities. This project has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation program (grant agreement no. 716388). We are also grateful to acknowledge financial support from the Fama-Miller Center at the University of Chicago and the UK Department for International Development (DFID) and the Centre for Economic Policy Research (CEPR) (PEDL Scale-Up ERG no. 3787). Paula Bustos acknowledges funding from Spain’s Ministry of Science, Innovation and Universities (grants no. ECO-2016-80411-P and MDM-2016-0684). Juan Manuel Castro Vincenzi provided outstanding research assistance.
ASJC Scopus subject areas
- Economics and Econometrics
