Fertilizing Growth: Agricultural Inputs and Their Effects in Economic Development

Author
John McArthur, Gordon C. McCord
Content Type
Working Paper
Institution
The Brookings Institution
Abstract
This paper uses cross-country panel data to estimate the agronomic inputs that lead to cereal yield improvements and the consequences for developing countries' processes of structural change. The results suggest a clear role for fertilizer, modern seeds and water in boosting yields. It then estimates empirical links in developing economies between increased agricultural yields and economic growth; in particular, the spillover effect from yield growth to declines of labor share in agriculture and increases of non-agricultural value added per capita. The identification strategy for the effect of fertilizer includes a novel instrumental variable that exploits variation in global fertilizer price, interacted with the inverse distance between each country's agriculturally weighted centroid and the nearest nitrogen fertilizer production facility. Results suggest that a half ton increase in staple yields (equal to the within-country standard deviation) generates a 13 to 20 percent higher GDP per capita, a 3.3 to 3.9 percentage point lower labor share in agriculture five years later, and approximately 20 percent higher non-agricultural value added per worker a decade later. The results suggest a strong role for agricultural productivity as a driver of structural change.
Topic
Agriculture, Economics, Labor Issues