Dani Rodrik's weblog

Another U-curve in economic development

During the course of research my co-author Maggie McMillan and I were doing on broad patterns of structural change, our research assistant Inigo Verduzco stumbled on an interesting stylized fact that is captured in the figure below.

What it shows is that the relative productivity of agriculture exhibits a U-shaped pattern over the course of development. It first falls and then rises, as countries get richer. (By productivity, I am referring to labor productivity.)

You can see the same pattern within countries as well. Here is a chart that collates the trends in three countries at different levels of development: India, Peru, and France:

In India, which is the poorest country, as overall productivity has increased, the productivity of agriculture (relative to other activities in the economy) has come down steadily. In France, the richest country, agricultural productivity has converged with that of the rest of the economy. In Peru, which is somewhere in between, the relative productivity of agriculture has fluctuated around the minimum point of the U-curve.

What these results point to are two critical dynamics that take place during the course of development. First, you need some new, high-productivity activities to emerge in order for development to happen. These typically arise outside of agriculture. So as these new activities propel the economy forward, agriculture falls behind in terms of relative productivity. Second, labor tends to move from low- to high-productivity activities as an economy gets richer. This tends to reduce the gap between productivity in agriculture and non-agriculture (think of diminishing marginal returns). At some point, the second dynamic overwhelms the first, and the curve begins to slope outward.

Lesson: economic development requires both new activities (diversification) and ongoing transfer of resources from traditional to modern activities. Some countries are stuck with no new industries, so they never grow. Others get a few new industries (e.g. mining and other natural resource-based industries), but these do not expand sufficiently and absorb much labor, so development gets stuck at an intermediate level of income. The real successful countries are those that pull off both tricks.

Das Globalisierungs-Paradox

For those of you who would rather read my new book in German, it will be out on February 23rd.  For more information on it, click here.

Translations into Spanish, Italian, Turkish, Greek, Chinese, and British English are also forthcoming.   

How I spent my winter break

In December I traveled to Turkey with my wife and young son, as we do every year during winter break. This time, though, we had more than visiting family and friends in mind. We were on a mission to demonstrate that what many have called the trial of the century in Turkey is in fact a sham built on fabricated evidence.

Read about our experience here.

The message from Tunisia and Egypt

If Tunisia’s Zine El Abidine Ben Ali or Egypt's Hosni Mubarak were hoping for political popularity as a reward for economic gains, they must have been sorely disappointed. Their people have just sent a sobering message to China and other authoritarian regimes around the world: don’t count on economic progress to keep you in power forever.

Read the article here.

Have an idea that will create jobs but not cost money?

The Hamilton Project at the Brookings Institution wants to hear about it.  You may even get a prize:

The Hamilton Project at the Brookings Institution has launched a prize competition to generate new thinking about ways to create jobs and enhance productivity. 

The 2011 Hamilton Project Policy Innovation Prize is open to academic, business and policy professionals who can demonstrate an original policy solution for increasing employment and productivity within two years of its implementation.  The winning proposals will be evidence-based and also take into account the economic reality of federal and state budget constraints.

The Project will award $25,000 in cash prizes, with the winner receiving $15,000 and the runners up dividing the remaining $10,000.  The full prize announcement can be found at: http://www.brookings.edu/projects/hamiltonproject/prize.aspx.

Just don’t say “cut red tape.” 

Not because you will be wrong necessarily, but because you will be in crowded company.