This paper studies the impact of a regional free trade agreement, MERCOSUR, on technology upgrading by Argentinean firms. To guide empirical work, I introduce technology choice in a model of trade with heterogeneous firms. The joint treatment of the technology and exporting choices shows that the increase in revenues produced by trade integration can induce exporters to upgrade technology. An empirical test of the model reveals that firms in industries facing higher reductions in Brazil's tariffs increase investment in technology faster. The effect of tariffs is highest in the upper-middle range of the firm-size distribution, as predicted by the model. (JEL F13, F15, O19, O24, O33)

We study the e¤ects of the adoption of new agricultural technologies on structural transformation. To guide empirical work, we present a simple model where the e¤ect of agricultural productivity on industrial development depends on the factor bias of technical change. We test the predictions of the model by studying the introduction of genetically engineered soybean seeds in Brazil, which had heterogeneous e¤ects on agricultural productivity across areas with di¤erent soil and weather characteristics. We …nd that technical change in soy production was strongly labor saving and led to industrial growth, as predicted by the model.

We thank Isabelle Morin from Abt Associates for her help in obtaining the pollution intensity data. We acknowledge financial support from the Fundación Ramón Areces, the Spanish Ministry of Science and Innovation, and the European Research Council (FP7/2007-2013, grant 263846). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Several scholars argue that high agricultural productivity can retard industrial development because it draws resources toward the comparative advantage sector, agriculture. However, agricultural productivity growth can increase savings and the supply of capital, generating an expansion of the capital-intensive sector, manufacturing. We highlight this mechanism in a simple model and test its predictions in the context of a large and exogenous increase in agricultural productivity due to the adoption of genetically engineered soy in Brazil. We find that agricultural productivity growth generated an increase in savings, but these were not reinvested locally. Instead, there were capital outflows from rural areas. Capital reallocated toward urban regions, where it was invested in the industrial and service sectors. The degree of financial integration affected the speed of structural transformation. Regions that were more financially integrated with soy-producing areas through bank branch networks experienced faster growth in nonagricultural lending. Within these regions, firms with preexisting relationships with banks receiving funds from the soy area experienced faster growth in borrowing and employment.