Beyond Dualism : Agricultural Productivity, Small Towns, and Structural Change in Bangladesh
This paper uses a framework that goes beyond rural-urban dualism and highlights the role of small town economy in understanding structural change in a developing country. It provides a theoretical and empirical analysis of the role of agricultural...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/632031496763345726/Beyond-dualism-agricultural-productivity-small-towns-and-structural-change-in-Bangladesh http://hdl.handle.net/10986/27287 |
| Summary: | This paper uses a framework that goes
beyond rural-urban dualism and highlights the role of small
town economy in understanding structural change in a
developing country. It provides a theoretical and empirical
analysis of the role of agricultural productivity in
structural transformation in the labor market. The empirical
work is based on a general equilibrium model that formalizes
the demand and labor market linkages: the small-town draws
labor away from the rural areas to produce goods and
services whose demand may depend largely on rural income.
The theory clarifies the role played by the income
elasticity of demand and the wage elasticity with respect to
productivity increase in agriculture. For productivity
growth to lead to a demand effect, the wage elasticity has
to be lower than a threshold. When the demand for goods and
services produced in small towns comes mainly from the
adjacent rural areas, the demand effect can outweigh the
negative wage effect, and lead to higher employment in the
town-goods sector. Using rainfall as an instrument, the
empirical analysis finds a significant positive effect of
agricultural productivity on rice yield and agricultural
wages. Productivity shock increases wages more in the rural
sample compared with the small town economy sample, but
structural change in employment is more pronounced in the
small-town economy. In the rural sample, it increases
employment only in small-scale manufacturing and services.
In contrast, a positive productivity shock has large and
positive impacts on employment in construction and
transport, education, health and other services, and
manufacturing employment in larger scale enterprises located
in small towns and cities. Agricultural productivity growth
induces structural transformation within the services sector
in small towns, with employment in skilled services growing
at a faster pace than that of low skilled services. |
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