Working Paper: NBER ID: w26331
Authors: Fernando M. Aragon Sanchez; Diego Restuccia; Juan Pablo Rud
Abstract: This paper shows that using yields may not be informative of the relationship between farm size and productivity in the context of small-scale farming. This occurs because, in addition to productivity, yields pick up size-dependent market distortions and decreasing returns to scale. As a result, a positive relationship between farm productivity and land size may turn negative when using yields. We illustrate the empirical relevance of this issue with microdata from Uganda and show similar findings for Peru, Tanzania, and Bangladesh. In addition, we show that the dispersion in both measures of productivity across farms of similar size is so large that it renders farm size an ineffective indicator for policy targeting. Our findings stress the need to revisit the empirical evidence on the farm size-productivity relationship and its policy implications.
Keywords: farm size; productivity; market distortions; agriculture; total factor productivity
JEL Codes: C33; C55; D24; E02; E13; O11; O12; O13; O4; O5; Q15; Q18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| yields (G12) | negative correlation with farm size (Q12) |
| market distortions (D43) | negative correlation with farm size (Q12) |
| decreasing returns to scale (D24) | negative correlation with farm size (Q12) |
| correcting for market distortions and relaxing CRS (D43) | positive correlation between farm productivity and farm size (Q12) |
| farm productivity derived from a production function (D24) | positive correlation with farm size (Q12) |
| substantial dispersion in productivity measures among farms of similar size (D29) | undermines utility of farm size as a proxy for productivity (D29) |