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Agricultural productivity, the real effective exchange rate, and structural change: Some evidence from Africa
Author(s) -
Grabowski Richard,
Self Sharmistha
Publication year - 2020
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12640
Subject(s) - depreciation (economics) , productivity , agriculture , economics , exchange rate , agricultural productivity , production (economics) , labour economics , monetary economics , macroeconomics , economic growth , human capital , capital formation , ecology , financial capital , biology
Abstract Agriculture is thought to play a number of roles in the early development process. All of these roles involve fostering non‐agricultural development, in particular manufacturing. It is argued in this paper that agriculture plays a role that has hitherto been ignored. Specifically, if agricultural labor productivity increases faster than manufacturing labor productivity, the real effective exchange rate will depreciate. This depreciation of real effective exchange rate occurs because in very poor countries agriculture makes up the dominant share of both GDP and employment. The depreciation also makes it easier for a country to expand the production of tradables relative to nontradables, with manufacturing being the main tradable. This proposition, which as agricultural labor productivity increases relative to manufacturing labor productivity the real effective exchange rate depreciates, is tested using data drawn from 10 sub‐Saharan African countries.