Land Reform and Productivity: A Quantitative Analysis with Micro Data

We assess the effects of a major land policy change on farm size and agricultural productivity, using a quantitative model and micro-level data. In particular, we study the 1988 land reform in the Philippines, which was an extensive land redistribution program that imposed a ceiling of 5 hectares on all land holdings while at the same time severely restricting the transferability of the redistributed farm lands. We combine two sources of micro data to study the size and productivity effects of the land reform: (a) Decennial Agricultural Census Data, which offer a complete enumeration of farms, outputs, and inputs at the farm level in two separate cross sections, before and after the reform; (b) Philippines Cash Cropping Project, a panel of farm survey data, which tracks a much more limited number of rural households before and after the reform but offers a wealth of information at the parcel and farm level. We decompose the change in aggregate agricultural productivity, before and after the reform, into: (a) a reallocation effect, whereby farming activity is shifted from large farms to small farms and (b) a within-farm effect. The panel of farm surveys allows us to track a particular farmer over time and therefore to observe the source of the within-farm effect following the reform, such as a change in the crop mix or input mix. By focusing on a given country and tracking farmers over time, we control for farmer ability and for location since land quality and climate are constant. We develop a quantitative model with a non-degenerate distribution of farm sizes that features an occupational-choice decision for the farmer. The farmer chooses between two technologies: a ``cash crop'' and a ``food crop'' technology. The cash crop technology requires larger plots to be profitable, while the food crop technology can be operated at any scale. A land reform reduces aggregate agricultural productivity not only by reallocating resources from large/high productivity farms to small/low productivity farms, but also by altering the technology choice of farmers away from the more productive technology. We calibrate the model to the agricultural sector of the Philippines before the reform. We discipline the parameters of the technology choice from the farm-survey data on farm-cropping patterns. We then impose the land reform policy limiting farm size to 5 hectares and we study the consequences of this policy for average farm size, aggregate agricultural productivity, and the distribution of farm-level productivities. Contrary to the many empirical studies of land reforms that find inconclusive evidence of the policy on productivity, our preliminary results indicate that the land reform had a substantial negative impact on farm size and agricultural productivity.