Table Of ContentUniversity of Iowa
Iowa Research Online
Theses and Dissertations
Summer 2012
Skill accumulation and international productivity
differences across sectors
Wenbiao Cai
University of Iowa
Copyright 2012 Wenbiao Cai
This dissertation is available at Iowa Research Online: https://ir.uiowa.edu/etd/3271
Recommended Citation
Cai, Wenbiao. "Skill accumulation and international productivity differences across sectors." PhD (Doctor of Philosophy) thesis,
University of Iowa, 2012.
https://doi.org/10.17077/etd.p0ozl52q
Follow this and additional works at:https://ir.uiowa.edu/etd
Part of theEconomics Commons
SKILL ACCUMULATION AND INTERNATIONAL PRODUCTIVITY
DIFFERENCES ACROSS SECTORS
by
Wenbiao Cai
An Abstract
Of a thesis submitted in partial fulfillment of the
requirements for the Doctor of Philosophy
degree in Economics
in the Graduate College of
The University of Iowa
July 2012
Thesis Supervisor: Professor B. Ravikumar
1
ABSTRACT
Why some countries are so much richer than others is a question of central
interest in economics. Low aggregate income per worker in poor countries is mostly
accounted for by low labor productivity and high employment in agriculture. This
thesis attempts to understand cross-country income difference through examining
productivity differences at the sector level - in agriculture and in non-agriculture.
Between rich and poor countries, there is a 45-fold difference in agricultural
output per worker and a 34-fold difference in mean farm size. In the first chapter, I
arguefarmer’sskillasaplausibleexplanationforthesedifferences. Themodelfeatures
heterogeneity in innate agricultural skill, on-the-job skill accumulation, and span-of-
control in agricultural production. I show that low total factor productivity (TFP)
in poor countries not only induces more individuals with low innate skill to choose
farming, but also reduces the incentive to accumulate skill. Between rich and poor
countries, themodel generates substantial difference infarmer’sskill, which translates
intodifferencesinagriculturalproductivityandfarmsizedistribution. Quantitatively,
the calibrated model explains half of the cross-country differences in agricultural
output per worker, and successfully replicates the size distribution of farms in both
rich and poor countries.
Cross-country productivity differences are asymmetric across sectors. The
labor productivity gap between rich and poor countries in agriculture is twice as
large as that in the aggregate, and ten times larger than that in non-agriculture. The
2
second chapter shows that these sectoral productivity differences can arise solely from
difference in aggregate TFP. I extend the framework in the first chapter to allow for
different skill in non-agricultural production as well. Low TFP distorts the allocation
of skills across sectors and discourages skill accumulation on the job. To discipline
the initial skill distribution and skill accumulation, the model is calibrated to match
earningsdistributionandage-earningsprofilesinbothagricultureandnon-agriculture
inthe U.S. The model’s implications arethen examined using asample of 70countries
that covers a wide range of development. Between rich and poor countries, the model
accounts for most of the productivity differences at the sector level - productivity
difference in agriculture in the model is 1.8 times larger than those in the aggregate
and 6 times larger than those in non-agriculture. As in the data, the share of farmer
in the labor force in the model declines from 85 percent in the poorest countries to
less than 2 percent in the richest countries. These results suggest that policy aiming
at improving overall efficiency should be prioritized.
Abstract Approved:
Thesis Supervisor
Title and Department
Date
SKILL ACCUMULATION AND INTERNATIONAL PRODUCTIVITY
DIFFERENCES ACROSS SECTORS
by
Wenbiao Cai
A thesis submitted in partial fulfillment of the
requirements for the Doctor of Philosophy
degree in Economics
in the Graduate College of
The University of Iowa
July 2012
Thesis Supervisor: Professor B. Ravikumar
Copyright by
WENBIAO CAI
2012
All Rights Reserved
Graduate College
The University of Iowa
Iowa City, Iowa
CERTIFICATE OF APPROVAL
PH.D. THESIS
This is to certify that the Ph.D. thesis of
Wenbiao Cai
has been approved by the Examining Committee for the thesis
requirement for the Doctor of Philosophy degree in Economics
at the July 2012 graduation.
Thesis Committee:
B. Ravikumar, Thesis Supervisor
Raymond G. Riezman
Gustavo J. Ventura
Guillaume Vandenbroucke
Srihari Govindan
To my sweet gril Connie
ii
ACKNOWLEDGEMENTS
Ioweagreatdebt ofgratitudetomyadvisor, B.Ravikumar, fromwhomIwish
I have learnt much more. It always amazes me how he sees through details into the
fundamentals and expresses deep ideas in a clear, concise fashion. Other committee
members have provided me tremendous help in the past five years, and I would like to
thank them here: Gustavo Ventura, Guillaume Vandenbroucke, Raymond Riezman,
and Srihari Govindan. I also want to thank two excellent economists that taught me
at Iowa: Ayca Kaya, Yuzhe Zhang.
Graduate study couldn’t have been as fun without an array of fantastic col-
leagues and friends. I truly enjoyed the time with them, be it spreading office gossips
or serious academic discussions. I will miss my friends Yigit Saglam, Michael Sposi,
Yaping Shan, Anson Ho, Muharrem Yesilirmak, Gagan Ghosh, and Chander Kochar.
Special thanks go to Renea Jay. She has always been there whenever I needed help
and support.
Finally, I thank my parents for supporting whichever route I pursue in my life.
Most of all, I thank my wife for her unconditional love.
iii
ABSTRACT
Why some countries are so much richer than others is a question of central
interest in economics. Low aggregate income per worker in poor countries is mostly
accounted for by low labor productivity and high employment in agriculture. This
thesis attempts to understand cross-country income difference through examining
productivity differences at the sector level - in agriculture and in non-agriculture.
Between rich and poor countries, there is a 45-fold difference in agricultural
output per worker and a 34-fold difference in mean farm size. In the first chapter, I
arguefarmer’sskillasaplausibleexplanationforthesedifferences. Themodelfeatures
heterogeneity in innate agricultural skill, on-the-job skill accumulation, and span-of-
control in agricultural production. I show that low total factor productivity (TFP)
in poor countries not only induces more individuals with low innate skill to choose
farming, but also reduces the incentive to accumulate skill. Between rich and poor
countries, themodel generates substantial difference infarmer’sskill, which translates
intodifferencesinagriculturalproductivityandfarmsizedistribution. Quantitatively,
the calibrated model explains half of the cross-country differences in agricultural
output per worker, and successfully replicates the size distribution of farms in both
rich and poor countries.
Cross-country productivity differences are asymmetric across sectors. The
labor productivity gap between rich and poor countries in agriculture is twice as
large as that in the aggregate, and ten times larger than that in non-agriculture. The
iv
Description:countries, the model generates substantial difference in farmer's skill, which translates into differences .. of course, conforms with the “Engel's curve”.
