Capital Accumulation and Structural Transformation

95 Pages Posted: 19 Feb 2018 Last revised: 7 Feb 2020

See all articles by Paula Bustos

Paula Bustos

CREI; Universitat Pompeu Fabra; Barcelona GSE

Gabriel Garber

Government of the Federative Republic of Brazil - Central Bank of Brazil

Jacopo Ponticelli

Northwestern University - Kellogg School of Management; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: November 26, 2019

Abstract

Several scholars argue that high agricultural productivity growth can retard industrial development as it draws resources towards the comparative advantage sector, agriculture. However, agricultural productivity growth can increase savings and the supply of capital, generating an expansion of the capital-intensive sector, manufacturing. We highlight this mechanism in a simple model and test its predictions in the context of a large and exogenous increase in agricultural productivity due to the adoption of genetically engineered soy in Brazil. We find that agricultural productivity growth generated an increase in savings, but these were not reinvested locally. Instead, there were capital outflows from rural areas. Capital reallocated towards urban regions, where it was invested in the industrial and service sectors. The degree of financial integration affected the speed of structural transformation. Regions that were more financially integrated with soy-producing areas through bank branch networks experienced faster growth in non-agricultural lending. Within these regions, firms with pre-existing relationships with banks receiving funds from the soy area experienced faster growth in borrowing and employment.

Keywords: agricultural productivity, bank networks, financial integration, Brazil, capital, manufacturing

JEL Classification: O14, O16, O41, F11

Suggested Citation

Bustos, Paula and Garber, Gabriel and Ponticelli, Jacopo, Capital Accumulation and Structural Transformation (November 26, 2019). Global Poverty Research Lab Working Paper No. 17-107, Available at SSRN: https://ssrn.com/abstract=3126453 or http://dx.doi.org/10.2139/ssrn.3126453

Paula Bustos

CREI; Universitat Pompeu Fabra ( email )

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Gabriel Garber

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Jacopo Ponticelli (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2211 Campus Dr
Evanston, IL 60208
United States

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/ponticelli/index.html

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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