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Abstract Agriculture in poor countries has low productivity, high employment, and negligible trade flows relative to other sectors. These facts motivate a multisector, open-economy view of international productivity differences. With a quantitative multicountry model featuring nonhomothetic preferences, multiple interrelated sectors, distorted labor markets, and costly trade, I find: trade amplifies the negative effect of labor market distortions; trade costs—large for poor countries, especially in agriculture—significantly contribute to international productivity differences; and explicitly modeling agriculture reveals additional channels through which poor countries may gain from trade. (JEL F41, J24, J43, O13, O19, Q11, Q17 )
American Economic Journal: Macroeconomics – American Economic Association
Published: Jul 1, 2015
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