The Long-run Development Impacts of Agricultural Productivity Gains: Evidence from Irrigation Canals in India
Sam AsherJohns Hopkins University
How and when do improvements in agricultural productivity translate into development and structural transformation? An extensive literature has addressed these questions, dating back to the earliest days of development economics. More recently, a new literature has focused on well identified empirical settings — typically those where high-quality micro data allows for the study of local shocks to productivity. Most of this literature has explicitly or implicitly assumed that labor movements across space are small, so that local productivity shocks are assumed to drive within-location movements of labor across sectors. This may be a reasonable restriction for very short-run analyses. But long-run outcomes may be very different due to labor mobility. In this paper, we draw on rich data that allow us to examine the long-run effects of agricultural productivity gains on structural transformation, in an environment where spatial mobility of labor is a potentially important margin of impact. Specifically, we examine irrigation canals constructed over the last 150 years in India. In the long run, canal areas have substantially higher land productivity and population density than nearby non-canal areas, consistent with higher population growth through some combination of natural increase and net in-migration. However, we see no change in the share of the workforce outside of agriculture (or even in agro processing). Consumption gains have accrued only to landowners, though the landless have made some education gains. A naive view might conclude on the basis of these observations that agricultural productivity increases have little impact on structural transformation. However, we are able to show that structural transformation instead occurs through higher growth rates in nearby towns. Our findings suggest that in the long run, agricultural growth may drive structural transformation through these spatially diffuse processes. We should not necessarily expect to see transformation occurring within the most agriculturally productive rural areas; instead, labor mobility may produce a new spatial equilibrium in which labor moves across space rather than across sectors within a location.