Agricultural Trade and Structural Change: The Case of Paraguay

Abstract

We study the effect of agricultural trade on structural change. For this purpose, we calibrate a three-sector general equilibrium model to quantify the role of trade in explaining the structural change pattern of Paraguay. This country experienced a significant rise in net agricultural exports as a percentage of aggregate output during the period 1962–2012. We find the following results. First, international trade is crucial to explaining the composition of employment in this country. The model including trade explains 84.7% of the changes in employment shares during this period, while the model without trade can only account for 36.1% of the changes. Second, employment in agriculture remains large in order to satisfy foreign demand, even as the expenditure share of consumption in this sector declines. Third, in the long run employment shifts directly from agriculture into services, bypassing manufacturing.