On the transition to sustained growth: The importance of recent agricultural employment

Abstract

We study a model where a single good can be produced using a diminishing-returns technology (Malthus) and a constant-returns technology (Solow). We map the former to agriculture and show that the share of agricultural employment declines at a constant rate during the economic transition and that recent observations on the share are sufficient to estimate the onset of transition. Our model implies that (i) output growth is higher and increasing after the onset of transition, (ii) during the transition, it is a first-order autoregressive process, and (iii) the rate of decline in the share of agricultural employment is a sufficient statistic for the autoregressive coefficient. Our quantitative results are consistent with these implications for developed economies over more than a century despite the changes in the sectoral composition of output and for today's developing economies in various stages of development and structural transformation.