Unlocking Agricultural Productivity: The Role of Land Rental Markets in Reducing Resource Misallocation

This paper examines the impact of the land rental market on agricultural misallocation and productivity, using Chile as a case study. The research integrates a calibrated macroeconomic model and causal evidence to analyze how market access distortions, such as fixed and adjustment costs, influence factor allocation and productive efficiency. The results indicate that farmers participating in the formal rental market are significantly more productive, with notable differences between those renting in and renting out land. Counterfactual analysis reveals that eliminating these distortions could increase aggregate agricultural productivity by 81%. Furthermore, fixed market access costs have a more significant impact than adjustment costs, as they restrict the participation of less productive farmers and hinder the efficient reallocation of land. This paper contributes to the literature on misallocation and agricultural productivity by providing novel evidence on the role of land rental markets in reducing productivity gaps in Latin America.