The Agricultural Productivity Gap: A New Look at the Measurement Problem
The Agricultural Productivity Gap (APG) - the ratio of the average labor productivity in non-agriculture to that in agriculture - tends to be very large in developing countries and potentially represents misallocation of resources. This paper makes three contributions to the literature on APG. First, it shows that APG steadily and substantially increased for an extended period of time in a majority of countries in recent past. Given the inverse correlation between APG and the level of income, it is contrary to expectations, especially for developing countries. Moreover, such an increase happened while the Agricultural Wage Gap (AWG) - the ratio of the average wage in non-agriculture to that in agriculture - remained more or less stable. Second, this paper provides an explanation for the puzzling breakdown of the accounting identity that the ratio of APG to AWG must be equal to the ratio of the labor share in agriculture to that in non-agriculture. It shows that inconsistency in estimating the labor income of the self-employed in the process of measuring the average wage and the labor share plays a crucial role. Third, this paper demonstrates that the puzzle is indeed resolved to a large extent, once the labor shares are calculated in ways that are consistent with the measurement of the average wage.
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