Agricultural productivity is known to decline with farm size in many developing countries. This may be a result of market imperfections, such as missing rural labor markets. On the other hand, there may be economies of scale in farming, due, for instance, to the importance of lumpy inputs. Hence, it is not theoretically obvious that the inverse relationship prevails in all situations. Indeed, several studies found non-monotonic relationships between productivity and farm size, with productivity decreasing with size up to a certain size and increasing beyond that point. This paper examines the relationship between Maize productivity and plot size in Zambia. If offers a unique empirical approach. First, it focuses on Maize, which is the major crop on small and medium size farms in Zambia, but also accounts for the endogenous determination of the size of the plot devoted to Maize. Previous studies used total farm size or harvested area. Second, it corrects for selectivity into Maize cultivation. Third, it controls for differences in land quality and weather conditions across districts. Finally, it offers a structural interpretation of the above framework by modeling farm decisions in two recursive stages, where land is first allocated to the different crops based on the information set of the farmers at the time of planting, and the yield is affected by subsequent application of inputs, the quantities of which may depend on additional information that is revealed after planting. We use this recursive structure and the differences in the information sets over time to identify the model. The results show that the endogeneity of plot size is very important in this analysis. When considering plot size as an exogenous explanatory variable, we find a monotonic positive relationship between the yield of Maize and plot size, indicating that economies of scale are dominant throughout the plot size distribution. However, when we correct for the endogeneity of plot size, we find that the inverse relationship dominates the economies of scale in all plots up to 3 hectares, which constitute 86% of our sample. These results suggest that market imperfections should be targeted by any policy aimed at increasing Maize productivity in Zambia.
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Paper provided by Hebrew University of Jerusalem, Department of Agricultural Economics and Management in its series Discussion Papers with number
14980.
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