What the ongoing movement of workers out of agriculture means for economic policy

By Taylor Jaworski, Queen’s University

Structural transformation is the long-run process that moves workers (and the output they produce) from agriculture to the manufacturing or service sectors. Empirically, this process is characterized by a declining share of employment (and output) in agriculture as income per capita rises. The flip side of the transition out of agriculture is the increasing then decreasing importance of manufacturing and the increasing importance of services. The figure below, which is taken from a recent survey by Berthold Herrendorf, Richard Rogerson, and Akos Valentinyi, illustrates this pattern for several currently developed countries since 1800.

 

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Structural Transformation in Developed Countries Since 1800

Structural transformation poses several challenges for policymakers. To see why, a useful starting point is the large literature in economics that describes the mechanismsRead More »

Why do we invest in transportation infrastructure and when does it work?

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Appalachian Development Highway System

By Taylor Jaworski, Queen’s University

Calls for renewed infrastructure investment have been prominent issues in recent election cycles in the United States and Canada. Bernie Sanders called for $1 trillion in spending compared with $48 billion in President Obama’s first term and a proposed $73 billion to end his second term. Here in Canada, Prime Minister Justin Trudeau promised an additional $60 billion in new infrastructure spending. These proposals have received the endorsement of many economists, including Larry Summers in a recent Washington Post op-ed and Paul Krugman in the New York Times earlier this year.

Crucially, policymakers need to clarify the objectives of infrastructure spending. On the one hand, is the goal to provide short- or medium-run stimulus to ailing economies? If so, then knowing the magnitude of the fiscal multiplier is essential. A survey and more recent work on the fiscal multiplier by Valerie Ramey of UC-San Diego is available here, here, and here. On the other hand, is the goal to take advantage of historically low interest rates and use improvements in transportation infrastructure to promote long-run economic growth? In this case, economic history together with recent advances in empirical economics can provide a window into the long-run benefits of investment in new highways, bridges, and rail infrastructure.Read More »