Uneven Growth in the Extensive Margin: Explaining the Lag of Agricultural Economies

Research output: Working paperDiscussion paperOther research output

Abstract

This paper documents that growth in the extensive margin is on average lower in the agricultural sector than in other activities. I introduce this new fact into a simple model of trade with expanding-variety growth, to show its relevance for regions specialized in the lagging sector. Diversity-loving consumers endogenously reduce the share of their expenditure devoted to that sector. The region specialized in it receives a decreasing share of world income, which results in diverging income and welfare trajectories with respect to the rest of the world. Appropriating a decreasing share of world value pushes downward the relative wage of the agricultural region and lowers the price of its exports relative to that of its imports, resulting in terms of trade deterioration. The prediction of falling terms of trade for the region specialized in the lagging agricultural sector is supported by empirical evidence and separates the results of my theory from those obtained in a similar model of uneven output growth between sectors. I present empirical evidence for the main testable results of the model. This theory is the first replicating these facts without the need of heterogeneous consumers or products, nor resorting to political or institutional explanations.
LanguageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages76
Volume2018-051
StatePublished - 6 Dec 2018

Publication series

NameCentER Discussion Paper
Volume2018-051

Fingerprint

Lag
Extensive margin
Agricultural sector
Terms of trade
Income
Empirical evidence
Relative wages
Heterogeneous consumers
Prediction
Deterioration
Output growth
Expenditure
Trajectory
Import

Keywords

  • diversification
  • agricultural economies
  • growth
  • welfare

Cite this

Ourens, G. (2018). Uneven Growth in the Extensive Margin: Explaining the Lag of Agricultural Economies. (CentER Discussion Paper; Vol. 2018-051). Tilburg: CentER, Center for Economic Research.
Ourens, Guzman. / Uneven Growth in the Extensive Margin : Explaining the Lag of Agricultural Economies. Tilburg : CentER, Center for Economic Research, 2018. (CentER Discussion Paper).
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Ourens, G 2018 'Uneven Growth in the Extensive Margin: Explaining the Lag of Agricultural Economies' CentER Discussion Paper, vol. 2018-051, CentER, Center for Economic Research, Tilburg.

Uneven Growth in the Extensive Margin : Explaining the Lag of Agricultural Economies. / Ourens, Guzman.

Tilburg : CentER, Center for Economic Research, 2018. (CentER Discussion Paper; Vol. 2018-051).

Research output: Working paperDiscussion paperOther research output

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AB - This paper documents that growth in the extensive margin is on average lower in the agricultural sector than in other activities. I introduce this new fact into a simple model of trade with expanding-variety growth, to show its relevance for regions specialized in the lagging sector. Diversity-loving consumers endogenously reduce the share of their expenditure devoted to that sector. The region specialized in it receives a decreasing share of world income, which results in diverging income and welfare trajectories with respect to the rest of the world. Appropriating a decreasing share of world value pushes downward the relative wage of the agricultural region and lowers the price of its exports relative to that of its imports, resulting in terms of trade deterioration. The prediction of falling terms of trade for the region specialized in the lagging agricultural sector is supported by empirical evidence and separates the results of my theory from those obtained in a similar model of uneven output growth between sectors. I present empirical evidence for the main testable results of the model. This theory is the first replicating these facts without the need of heterogeneous consumers or products, nor resorting to political or institutional explanations.

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Ourens G. Uneven Growth in the Extensive Margin: Explaining the Lag of Agricultural Economies. Tilburg: CentER, Center for Economic Research. 2018 Dec 6, (CentER Discussion Paper).