Agriculture in a Dynamic Cross-Sector Model

The assumption of adjustment costs is used to specify a dynamic model of the U.S. economy. Output is divided into in three sectors: agriculture, manufacturing, and services. The advantage of this approach is that it can measure more factors that contribute to productivity growth than a static model. Output growth and productivity are measured using data and parameters from an estimated dynamic model. Parameters that are unique to dynamic models and a returns-to-scale measure make up part of the productivity calculations. Dynamic components of productivity are less than 5 percent of productivity growth for most years. This occurs because dynamic components of productivity are a function of returns to scale, and production is measured to be close to constant returns to scale. Elasticities from the estimated model show that both manufacturing and service prices have a major impact on agricultural output. Own-price elasticities are relatively small for agriculture.