Working Paper: NBER ID: w23039
Authors: Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia
Abstract: We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial within- village frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). Selection substantially amplifies the productivity effect of distortionary policies by affecting occupational choices that worsen average ability in agriculture.
Keywords: misallocation; productivity; China; agriculture
JEL Codes: O11; O14; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| within-village frictions in land and capital markets (R21) | reduced aggregate agricultural productivity (Q11) |
| misallocation (D61) | reduced aggregate agricultural productivity (Q11) |
| selection (Y60) | reduced aggregate agricultural productivity (Q11) |
| selection amplifies the productivity effect of distortionary policies (H31) | worsens average ability in agriculture (Q19) |
| reallocating factors across existing farmers within villages (Q12) | increase agricultural total factor productivity (TFP) by 24.4% (Q16) |
| allowing factor inputs to be allocated efficiently across villages (P23) | increase agricultural total factor productivity (TFP) by 53.2% (Q16) |
| eliminating the correlation of distortions with farm-level productivity (D29) | threefold increase in agricultural productivity (Q11) |