Research

Economic development is typically associated with a reallocation of labor from agriculture to manufacturing and services, yet there are numerous frictions to this process. This paper studies how agricultural land fragmentation affects manufacturing expansion and structural transformation in developing economies. Exploiting an inheritance reform in India, I show that greater fragmentation—measured by declines in district-level average farm size—reallocates labor from manufacturing to agriculture, with no effect on services. Fragmentation also slows manufacturing growth, reducing the number of firms and employment, with larger effects in more land-intensive industries. To identify underlying mechanisms and evaluate welfare implications, I develop a two-sector general equilibrium model in which landlords allocate heterogeneous plots between agriculture and manufacturing. Fragmentation affects structural transformation by shifting relative sectoral rents. It changes agricultural returns per unit of land and raises firms’ costs of assembling land for manufacturing. I estimate that, between 2001 and 2011, fragmentation raised agricultural returns per acre by 1.07% and manufacturing land-assembly costs by 35%. On average, fragmentation generates an additional welfare gain of 0.46 percentage points, but these gains are unevenly distributed. Real wages fall by 1.8 percentage points, while real rents rise by 4.6 percentage points. Eliminating manufacturing land-assembly frictions nearly doubles the welfare gain.

We study how access to international markets shapes the distributional effects of a large-scale external integration in the presence of poor domestic infrastructure. Exploiting India’s 1990s trade liberalization, we find that manufacturing gains and reallocation of labor out of agriculture are more pronounced in regions with better access to international ports. We develop a quantitative spatial model that reveals stark distributional inequalities from trade liberalization, with gains heavily skewed towards regions with better port access. We find that a counterfactual highway expansion specifically targeting port-connectivity completely eliminates these spatial inequalities while producing net aggregate benefits.

This paper examines how transport and communication infrastructure expansion differentially shapes the direction of structural change in developing economies. Empirically, we study the causal impact of a rapid expansion in the roads and cellular infrastructure in India on its service-led growth. To interpret this evidence, we embed communication costs in a canonical multi-sector spatial model of trade. Quantitative estimates indicate that India's infrastructure expansion generated substantial welfare gains, accounting for 76% of the real income growth over this time period. Importantly, the gains were asymmetric: the impact from cellular network expansion was much larger than roads, highlighting the central role of communication in generating service-led structural transformation.