Macroeconomics Seminar Series: Technology Adoption, Capital Deepening and International Productivity Differences

Cross-country differences in capital intensity are larger in agriculture than in non-agriculture, echoing the well-known fact that labor productivity differs more in agriculture. To study why agricultural capital intensity differs and how it affects labor productivity, I build a two-sector model featuring technology adoption in agriculture among heterogeneous farmers. As the economy develops, farmers gradually adopt modern capital-intensive technologies to replace traditional labor-intensive technologies, during which agricultural labor productivity grows rapidly. The model is calibrated to U.S. historical data. I find that the lack of technology adoption is key to explaining lower agricultural capital intensity and labor productivity of poor countries. By allowing for technology adoption, my model explains 1.49-fold more in cross-country agricultural productivity differences, compared to a model without a technology adoption channel. I further show that land misallocation impedes technology adoption and magnifies productivity differences.