Research Seminar in Economics - Joan Monras, Pompeu Fabra University, "Skill-biased Agricultural Technical Change, Industrial Specialization, and Endogenous Growth

The introduction of labor-saving technologies in agriculture can foster structural transformation by freeing workers who find occupation in other sectors. The traditional view is that this increase in labor supply can lead to industrial development. However, skilled-biased-labor-saving technical change in agriculture generates a reallocation of unskilled workers towards the manufacturing sector, which reinforces comparative advantage in low-skilled industries. In general, these industries also undertake less R\&D and have lower productivity, which can lower long-run welfare as explained in the seminal endogenous growth open economy model by Grossman and Helpman (1991). We provide ample evidence for this model using a large and exogenous increase in agricultural productivity due to the adoption of genetically engineered soy in Brazil. Our results suggest that improvements in agricultural productivity, while positive in the short-run, can have negative effects on industrial development in the long-run.