A defining feature of many poor economies is the large fraction of workers engaged in subsistence agriculture. We develop a multi-sector multi-region model of a poor economy in which it is costly to transport goods across regions in order to study this outcome. A key finding is that higher transport costs drive up the size of the agricultural workforce and the fraction in subsistence. In a calibrated version of our model we show that the effect of transport productivity is quantitatively important in terms of both allocations and welfare.
Gollin, D.; Rogerson, R. Productivity, transport costs and subsistence agriculture. Journal of Development Economics (2014) 107: 38-48. [DOI: 10.1016/j.jdeveco.2013.10.007]
Productivity, transport costs and subsistence agriculture