Agricultural productivity and the share of manufacturing employment

ABSTRACT This paper develops a new mechanism by which agricultural productivity growth can augment the share of manufacturing employment. Agricultural productivity growth can, through its impact on relative price, result in depreciation in the real effective exchange rate. This in turn improves the competitiveness of tradable sector production, in particular manufacturing. Ethiopia is used as a case study to illustrate these ideas. Ethiopia is chosen because it has followed an agriculturally led economic development since the 1990s. However, Ethiopia’s experience also illustrates that a supportive macroeconomic environment is necessary for the mechanism discussed in this paper to operate effectively.