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Does Farm Size Really Converge? The Role of Unobserved Farm Efficiency

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Author Info
Dolev, Yuval
Kimhi, Ayal

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Abstract

We analyze the growth of family farms in Israeli cooperative villages between 1981 and 1995, using longitudinal data. We use instrumental variables to account for the endogeneity of initial farm size, and correct for selectivity due to farm survival. We also include a technical efficiency index, derived from the estimation of a stochastic frontier production model, as an explanatory variable. We find that technical efficiency is an important determinant of farm growth, and that not controlling for technical efficiency could seriously bias the results. The size distribution of Israeli family farms is found to be mostly diverging, while without technical efficiency farm growth seemed to be predominantly random.

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Paper provided by Hebrew University of Jerusalem, Department of Agricultural Economics and Management in its series Discussion Papers with number 45778.

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Date of creation: Dec 2008
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Handle: RePEc:ags:huaedp:45778

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Postal: Faculty of Agriculture, Food and Environmental Quality Sciences Hebrew University of Jerusalem, P.O. Box 12, Rehovot 76100
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Related research
Keywords: farm size; farm growth; farm survival; instrumental variables; sample selection; technical efficiency; Q12; L25; C34;

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  1. Carter, Michael R, 1984. "Identification of the Inverse Relationship between Farm Size and Productivity: An Empirical Analysis of Peasant Agricultural Production," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 131-45, March. [Downloadable!] (restricted)
  2. Kostov, Philip & Patton, Myles & Moss, Joan & McErlean, Seamus, 2005. "Does Gibrat's Law Hold Amongst Dairy Farmers in Northern Ireland?," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24775, European Association of Agricultural Economists. [Downloadable!]
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  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  4. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August. [Downloadable!] (restricted)
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  5. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 583-606, June. [Downloadable!] (restricted)
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  6. Avner Ahituv & Ayal Kimhi, 2006. "Simultaneous estimation of work choices and the level of farm activity using panel data," European Review of Agricultural Economics, Oxford University Press for the Foundation for the European Review of Agricultural Economics, vol. 33(1), pages 49-71, March.
  7. Goodwin, Barry K. & Mishra, Ashok K. & Kimhi, Ayal, 2007. "Household Time Allocation And Endogenous Farm Structure: Implications For The Design Of Agricultural Policies," Discussion Papers 7167, Hebrew University of Jerusalem, Department of Agricultural Economics and Management. [Downloadable!]
  8. Chavas, Jean-Paul, 2001. "Structural change in agricultural production: Economics, technology and policy," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 5, pages 263-285 Elsevier. [Downloadable!] (restricted)
  9. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  10. Marian Rizov & Erik Mathijs, 2003. "Farm Survival and Growth in Transition Economies: Theory and Empirical Evidence from Hungary," Post-Communist Economies, Taylor and Francis Journals, vol. 15(2), pages 227-242, January. [Downloadable!] (restricted)
  11. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March. [Downloadable!] (restricted)
  12. Feder, Gershon, 1985. "The relation between farm size and farm productivity : The role of family labor, supervision and credit constraints," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 297-313, August. [Downloadable!] (restricted)
  13. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March. [Downloadable!] (restricted)
  14. Key, Nigel D. & Roberts, Michael J., 2007. "Do Government Payments Influence Farm Size and Survival?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 32(02), August. [Downloadable!]
  15. Paul, Catherine J. Morrison & Nehring, Richard, 2005. "Product diversification, production systems, and economic performance in U.S. agricultural production," Journal of Econometrics, Elsevier, vol. 126(2), pages 525-548, June. [Downloadable!] (restricted)
  16. Ahituv, Avner & Kimhi, Ayal, 2002. "Off-farm work and capital accumulation decisions of farmers over the life-cycle: the role of heterogeneity and state dependence," Journal of Development Economics, Elsevier, vol. 68(2), pages 329-353, August. [Downloadable!] (restricted)
  17. Mary Clare Ahearn & Jet Yee & Penni Korb, 2005. "Effects of Differing Farm Policies on Farm Structure and Dynamics," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 87(5), pages 1182-1189, November. [Downloadable!] (restricted)
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