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On the Transition to Modern Growth: Lessons from Recent Agricultural Employment

We study a model where a single good can be produced using a diminishing-returns technology (Malthus) and a constant-returns technology (Solow). We map the Malthus technology to agriculture and show that the share of agricultural employment declines at a constant rate. Using a few recent observations on the share, we estimate the onset of transition for the U.S. and Western Europe without using output data. We show that output growth is higher after the estimated onset of transition than it is before. Our model implies that output growth during the transition is a first-order autoregressive process and that the rate of decline in the share of agricultural employment is a sufficient statistic for the autoregressive coefficient. Quantitatively, while there is no a priori reason that recent agricultural employment would pin down output dynamics over two centuries, the autoregressive coefficient is practically the same as the one implied by the decline in agricultural employment. This quantitative result holds for developing economies as well.

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