Cross-country agricultural TFP convergence and capital deepening: evidence for induced innovation from 17 OECD countries

Abstract

Using a newly constructed panel dataset for agriculture in 17 OECD countries over the 1973–2011 period, we investigate the role of capital deepening in affecting agricultural TFP growth and the convergence of relative TFP levels across countries with different relative factor endowments. Our results show that capital deepening contributes positively to agricultural productivity growth among countries with similar levels of land relative to labor as reflected in relative prices. Depending on the relative endowments of land to labor, countries with relatively more abundant land are more likely to achieve technological gains through capital deepening than countries with relatively more labor. This finding is consistent with Hayami and Ruttan (1970a) and provides supportive evidence for the induced innovation hypothesis.