Does Agricultural Growth Cause Manufacturing Growth?

Abstract

The role of agricultural development for industrialization is central to several theories of economic development and policy. However, empirically assessing the impact of agricultural growth on manufacturing growth is challenging because of endogeneity concerns. To address the identification challenge, I use random weather variations to instrument agricultural growth. The instrumental variable estimations show that agricultural growth has a significant positive impact on manufacturing growth. I discuss the empirical implications for efficiency of the manufacturing sector and the role of agriculture in Africa's industrialization.

Tax Revenue Effects of Sectoral Growth and Public Expenditure in Uganda

“…A 1% point increase in industrial GDP results in a 0.269% increase in tax‐to‐GDP ratio. One possible explanation is that industry has both forward and backward linkages: it can support value addition in agriculture through agro‐processing (Shifa, ) and yet ably link to the services sector, for example, through trade in manufactured products, support to banking, telecoms, and other trade‐support services. Indeed industrial growth can lead to structural transformation from low productivity jobs in agriculture to higher productivity jobs in industry and manufacturing (Page, ).…”

Evidence of growth complementarity between agriculture and industry in developing countries

“…For example, using precipitation as an instrumental variable (along with international commodity prices), Brückner (2012) finds that lower value added in agriculture leads to distress migration and the expansion of urban informal activities. In turn, using temperature and precipitation as instrumental variables, Shifa (2014) finds that higher growth in agriculture elicits sizable short-run increases in growth in manufacturing in a large sample of countries.…”

“…The sample used in this paper includes only developing countries, as opposed to the related studies of Dell et al (2012a) and Shifa (2014). Yet growth in agriculture may affect the manufacturing sector differently depending on country characteristics such as the share of agriculture in GDP, or the degree of openness to trade.…”

“…This paper joins a growing literature using climate data to identify supply shocks in agriculture (see Dell et al, 2013, for a broad review). It is particularly related to papers that have used this identification strategy to establish causal relations between agricultural growth and broader economic outcomes, such as local urban activity (Henderson et al, 2009), patterns of migration (Brückner, 2012), and industrial growth (Shifa, 2014).…”

Biased Technical Change in Agriculture and Industrial Growth

“…A strand of this literature has used climate variables—such as temperature or rainfall—to identify this positive causal effect (see e.g. Henderson et al ., 2012; Shifa, ; de Souza, ). These studies confirm previous findings obtained from time series techniques (Kanwar, ; Tiffin and Irz, ; Chebbi and Lachaal, ).…”