Structural Transformation of the Agricultural Sector in Low- and Middle-Income Economies

Abstract

Movement of labor from agriculture to non-agriculture and the associated rise of farm size through structural transformation are at the core of economic development. We conduct a comprehensive review of the literature exploring the causes and consequences of the transformation. We discuss (i) the size and determinants for the persisting wage gap between agriculture and non-agriculture; (ii) policy-induced barriers to structural changes; (iii) the role of trade costs and technical change in shaping the nature of structural transformation and comparative advantage of regions, and (iv) how the overall development of an economy affects the relationship between farm size and farm productivity and hence changes competitiveness of different scales of farms. Questions for policy and research and ways in which new sources and interoperability of data can help answer these questions are also identified.

Keywords: developing economies, productivity, resource allocation, smallholder farming, structural transformation

JEL Classification: O12, O40, Q12