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A Common Factor Approach to Spatial Heterogeneity in Agricultural Productivity Analysis

  • Francis Teal
  • Markus Eberhardt

In this paper we investigate a 'global' production function for agriculture, using FAO data for 128 countries from 1961-2002.� Our review of the empirical literature in this field highlights that existing cross-country studies largely neglect variable time-series properties, parameter heterogeneity and the potential for heterogeneous Total Factor Productivity (TFP) processes across countries.� We motivate the case for technology heterogeneity in agricultural production and present statistical tests indicating nonstationarity and cross-section dependence in the data.� Our empirical approach deals with these difficulties by adopting the Pesaran (2006) Common Correlated Effects estimators, which we extend by using alternative weight-matrices to model the nature of the cross-section dependence.� We furthermore investigate returns to scale of production and production dynamics.� Our results support the specification of a common factor model in intercountry production analysis, highlight the rejection of constant returns to scale in pooled models as an artefact of empirical misspecification and suggest that agro-climatic environment, rather than neighbourhood or distance, drives similarity in TFP evolution across countries.� The latter finding provides a possible explanation for the observed failure of technology transfer from advanced countries of the temperate 'North' to arid and/or equatorial developing countries of the 'South'.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2009-05.

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Date of creation: 01 May 2009
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Handle: RePEc:oxf:wpaper:csae-wps/2009-05
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