Publication Type
Journal Article
Version
submittedVersion
Publication Date
2-2018
Abstract
This paper shows that a negative shock to agricultural productivity may increase food prices, and labor and capital can move away from manufacturing into agriculture to meet the subsistence requirement for food. This effect depends on income levels and openness to trade. Using annual manufacturing data and rainfall shocks as the instrument for crop yields (proxy for agricultural productivity), I find that an exogenous decline in yield decreases manufacturing output as well as employment and capital investment in manufacturing. Overall, crop yield variation can explain up to 44% of industrial output fluctuations in developing countries (rainfall shocks cause 31% of the fluctuations). Lastly, this paper shows that such perverse phenomena, in which resources move toward the sector with declining productivity, can lead to a significant reduction in aggregate productivity.
Keywords
Two-sector general equilibrium models, economic fluctuations, volatility, instrumental variable analysis, agricultural productivity
Discipline
Agricultural and Resource Economics | Economics | Economic Theory | Macroeconomics
Research Areas
Macroeconomics
Publication
European Economic Review
Volume
102
First Page
240
Last Page
279
ISSN
0014-2921
Identifier
10.1016/j.euroecorev.2017.10.024
Publisher
Elsevier
Citation
LEE, Iona Hyojung.
Industrial output fluctuations in developing countries: General equilibrium consequences of agricultural productivity shocks. (2018). European Economic Review. 102, 240-279.
Available at: https://ink.library.smu.edu.sg/soe_research/1728
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.euroecorev.2017.10.024
Included in
Agricultural and Resource Economics Commons, Economic Theory Commons, Macroeconomics Commons