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Abstract
The process of economic development is characterized by rising output per agricultural
worker and the exit of labor from agriculture to other sectors, which together
result in rising incomes and falling incidence of poverty. This paper explores the relationship
between labor productivity and the occupational choices that underlie the
structural transformation process. I model households' decisions to participate in different
activities (farming, wage employment, and self employment) through operation
of a household non-farm enterprise. I estimate a structural, polytomous model
of occupational choice using nationally representative household survey datasets from
Tanzania, matched geospatially to several other relevant datasets. Then, I simulate the
response of occupational choice to stylized productivity shocks to farming, wage employment,
and self employment. I find that participation in farming is not responsive
to productivity shocks of any sort. This is most likely because farming participation
rates are already quite high. Wage and self employment participation do respond to
wage and self employment productivity shocks, respectively. These results highlight
the importance of investing in improved smallholder farmer productivity, especially
along the intensive margins of farming participation and especially in places with low
population density and poor market access, where farming productivity gains are the
only ones to impact households.