Abstract: This dissertation consists of three chapters. This first chapter studies ability sorting between rural and urban regions induced by regional differences in prices and evaluates the importance of this mechanism in explaining the large rural-urban (agriculture-non-agriculture) income gap in developing countries. The second chapter studies how capital deepening might help explain several development facts regarding agriculture when capital-labor substitution is easier in agriculture than in non-agriculture. The third chapter explores resource misallocation in production networks and studies how ignoring them might lead to mismeasured efficiency loss from misallocation.