UC Davis Agricultural and Resource Economics

Gabriella Santangelo, Yale University

Firms and Farms: The Impact of Agricultural Productivity on the Local Indian Economy

Date and Location

Wednesday, January 20, 2016, 4:10 PM - 5:30 PM
ARE Library, 4101 Social Sciences and Humanities


How do agricultural productivity shocks propagate through the local economy and affect firms? I combine firm, household and district-level data from India, and exploit weather-induced agricultural volatility, to estimate the response of manufacturing firms to changes in agricultural productivity. I show that negative agricultural productivity shocks reduce firm production and employment. This holds true even though the local wage decreases. The effect is driven by firms that produce locally-traded goods, suggesting that the decrease in local demand induced by lower incomes plays a key role. I then examine whether the introduction of a large-scale rural workfare program affects the response of the local economy to agricultural volatility. I show that the program acts as a stabilization policy and attenuates the pro-cyclical response of local wage, consumption, and firms’ outcomes to agricultural productivity shocks. The results highlight the importance of local rural demand for a large share of manufacturers and underscore how rural development policies that target households can strongly affect the industrial sector because of general equilibrium effects.

Contact Us

2116 Social Sciences and Humanities
University of California, Davis
One Shields Avenue
Davis, CA 95616

Main Office: 530-752-1515

Student Advising Services: 530-754-9536