Most models of structural transformation are based on closed economy frameworks in which the price mechanism leads the sectoral composition of production to match domestic consumption. An obvious criticism is that in an open economy framework, production will instead reflect the economy’s comparative advantage with respect to the rest of the world. In particular, the “food problem” of Gollin et al. (2007) would not bind in a low-income economy with poor agricultural productivity; such an economy could simply import food. This paper shows that in an open economy with internal spatial frictions, the food problem can continue to bind. Domestic spatial frictions matter crucially for the sectoral and spatial allocation of economic activity, for the economy’s pattern of international trade, and for spatial differences in food consumption.
STEG Working Paper Series
• Research Theme 3: Agricultural Productivity and Sectoral Gaps,
Research Theme 4: Trade and Spatial Frictions,
Cross-Cutting Issue 2: Climate Change and the Environment
The food problem and structural change in an imperfectly open economy
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