Land Misallocation and Productivity

We assess the importance of land misallocation for productivity in agriculture using a quantitative model and detailed household-level data from Malawi. The land market is largely underdeveloped in Malawi as the vast majority of land is transmitted by inheritance, almost none of the land is purchased with a title, and a very small portion of operated land is rented. Moreover, the land distribution in Malawi is fairly concentrated at extremely small operational scales, with more than 70 percent of all farmers operating less than 2 acres of land. Using the micro data, we estimate the distribution of farmer's productivity and the wedges that rationalize the actual distribution of farm sizes in the context of a standard model of farm size with endogenous farm-level productivity. The micro data indicates that while the distribution of farmers productivity approximates a log normal with substantial dispersion, land is spread among farmers at very low operational scales. Under the counterfactual that land is reallocated via a land market to the best productive uses, we find an increase in agricultural productivity of a factor of 4-fold. This result emphasizes the importance of land market efficiency for productivity and suggest that land misallocation may be at the core of the large real productivity differences in agriculture across countries.