Industrialization without Innovation
The introduction of labor-saving technologies in agriculture can foster structural transformation by releasing workers who find occupation in other sectors. The traditional view is that the reallocation of labor towards manufacturing generates innovation and productivity growth. We conduct an empirical investigation of this structural transformation process in the context of a large and exogenous increase in agricultural productivity in Brazil. We find that workers leaving agriculture were mostly unskilled. Thus, they found employment in the least skill-intensive manufacturing industries. Next, we investigate the effect of this change in comparative advantage within the manufacturing sector on innovation. We use social security data to develop a new measure of the labor input in innovation that is representative at any level of spatial aggregation. We find that regions with faster agricultural productivity growth experienced a reallocation of unskilled workers away from agriculture into the least R&D-intensive manufacturing industries. The expansion of low-R&D industries attracted workers away from innovative occupations in high-R&D industries, slowing down local aggregate manufacturing productivity growth.
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