Farm Work, Home Work and International Productivity Differences

Agriculture's share of economic activity is known to vary inversely with a country's level of development. This paper examines whether extensions of the neoclassical growth model can account for some important sectoral patterns observed in a current cross-section of countries and in the time series data for currently rich countries. We find that a straightforward agricultural extension of the neoclassical growth model restricted to match U.S. observations fails to account for important aspects of the cross-country data. We then introduce a version of the growth model with home production, and we show that this model performs much better.