The Long-Run Development Impacts of Agricultural Productivity Gains: Evidence from Irrigation Canals in India

• Agricultural Economics Workshop
• Departmental Seminar

Date and Location

Thursday, May 12, 2022, 12:10 PM - 1:30 PM
Online Meeting, Zoom

Abstract

How do investments in agricultural productivity translate into development and structural transformation? An extensive literature has addressed these questions, dating back to the earliest days of development economics. In this paper, we estimate the long-run impacts of India's irrigation canals, which span over 300,000 km and deliver water to over 100,000 villages. Drawing on high-resolution data on every household, firm, village, and town in India, we use three empirical strategies to characterize the direct and spillover effects of large increases in agricultural productivity. First, we exploit the gravity-driven nature of canal irrigation in a regression discontinuity design with elevation as the running variable. Second, we study
spillovers by comparing untreated settlements close to canals to those farther away. Third, we use a 100-year panel of urban populations to estimate the effects of canals on regional urbanization. In the long run, canal access drives substantially higher irrigation intensity and land productivity. These changes result in higher population density, but treated areas experience no structural transformation: there are no changes in the share of the workforce outside of agriculture, or even in agro-processing. Consumption gains accrue only to landowners; we estimate a tight null effect on the consumption of the 60% of the population with little or no land. Structural transformation does occur, but through the growth of regional towns rather than through sectoral reallocation of labor within treated villages or their near neighbors. Our findings are consistent with a model where labor is mobile in the long run, and where urban areas have productivity advantages that cause most non-farm growth to occur in towns. In the long run, the substantial productivity effects of canals were equilibrated through the movement of labor across space rather than within locations across sectors.