CAFRAL-SRU Brown Bag Seminar - Agricultural Productivity Growth And Rural Non-Farm Employment: Evidence From India
Speaker(s) Subrata Kumar Ritadhi, Manager, Reserve Bank of India Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001

This paper studies the role of agricultural growth in the process of structural transformation using data from 273 districts in India over a twenty-five year period. To generate exogenous variation, we instrument agricultural productivity with contemporaneous shocks in monsoon rainfall and identify the impact of rainfall-induced agricultural productivity on the generation of non-farm employment for rural workers. Our results show that agricultural productivity has a positive and significant impact on the share of rural workers employed in the manufacturing sector for both male and female workers. Through a disaggregation of broad employment categories, the paper identifies that the non-farm employment generated is located in unskilled activities, particularly in the food and textiles sectors and concentrated amongst workers with low levels of education. Using a reduced form specification, the paper shows that the effect of rainfall-induced shocks to agricultural productivity on rural non-farm employment is limited to short-run effects with no evidence of a medium or long-term impact. Through a test of the differential effects of agricultural productivity across districts' initial levels of urbanization and agricultural productivity, the paper shows that rainfall-induced shocks to agricultural productivity can lead to convergence across districts with respect to the creation of rural non-farm employment.