In the study discussed on page 124, the authors found a real GDP growth rate of 9.3% for China from 1978 to 2004. In terms of the simple growth equation discussed, 2 percentage points of the growth was due to adding workers, 3.2 percentage points was due to capital accumulation, and 3.9 percentage points was due to increases in total factor productivity. A more complex version of the authors’ results shows that 1.2 percentage points of total factor productivity growth’s contribution resulted from the movement of workers from agricultural to industrial sectors.
a. Why would reallocating workers between sectors in the economy increase economic growth?
b. All other things being equal, if moving workers from agriculture to industry increases output, what does this imply about the marginal productivity of labor in agriculture prior to the move?