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Are Small Farms Really more Productive than Large Farms?

Author

Listed:
  • Fernando Aragon Sanchez

    (Simon Fraser University)

  • Diego Restuccia

    (University of Toronto)

  • Juan Pablo Rud

    (Royal Holloway, University of London)

Abstract

We revisit the long-standing empirical evidence of an inverse relationship between farm size and productivity using rich micro data from Uganda. We show that farm size is nega- tively related with yields (output per hectare), as commonly found in the literature, but positively related with farm productivity (a farm-specific component of total factor pro- ductivity). These conflicting results do not arise because of omitted variables such as land quality, measurement error in output or inputs, or specification issues. Instead, we reconcile the findings emphasizing decreasing returns to scale in farm production and farm-specific distortions. We exploit regional variation in land tenure regimes in Uganda in evaluating the role of farm-specific distortions. Our findings point to the limited value of yields (or land productivity) in establishing the size-productivity relationship. More generally, we highlight farm size as an ineffective instrument for policy implementation since size is deeply con- founded by distortions in developing countries.

Suggested Citation

  • Fernando Aragon Sanchez & Diego Restuccia & Juan Pablo Rud, 2019. "Are Small Farms Really more Productive than Large Farms?," 2019 Meeting Papers 1230, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:1230
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    References listed on IDEAS

    as
    1. Barrett, Christopher B., 1996. "On price risk and the inverse farm size-productivity relationship," Journal of Development Economics, Elsevier, vol. 51(2), pages 193-215, December.
    2. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    3. Benjamin, Dwayne, 1995. "Can unobserved land quality explain the inverse productivity relationship?," Journal of Development Economics, Elsevier, vol. 46(1), pages 51-84, February.
    4. Daniel Ayalew Ali & Klaus Deininger, 2015. "Is There a Farm Size–Productivity Relationship in African Agriculture? Evidence from Rwanda," Land Economics, University of Wisconsin Press, vol. 91(2), pages 317-343.
    5. Carletto, Calogero & Savastano, Sara & Zezza, Alberto, 2013. "Fact or artifact: The impact of measurement errors on the farm size–productivity relationship," Journal of Development Economics, Elsevier, vol. 103(C), pages 254-261.
    6. Tasso Adamopoulos & Loren Brandt & Jessica Leight & Diego Restuccia, 2017. "Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China," Working Papers tecipa-593, University of Toronto, Department of Economics.
    7. Gourlay,Sydney & Kilic,Talip & Lobell,David, 2017. "Could the debate be over ? errors in farmer-reported production and their implications for the inverse scale-productivity relationship in Uganda," Policy Research Working Paper Series 8192, The World Bank.
    8. Fernando M. Arag'on & Francisco Oteiza & Juan Pablo Rud, 2019. "Climate Change and Agriculture: Subsistence Farmers' Response to Extreme Heat," Papers 1902.09204, arXiv.org, revised Feb 2019.
    9. Bardhan, Pranab K, 1973. "Size, Productivity, and Returns to Scale: An Analysis of Farm-Level Data in Indian Agriculture," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1370-1386, Nov.-Dec..
    10. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    11. Collier, Paul & Dercon, Stefan, 2014. "African Agriculture in 50Years: Smallholders in a Rapidly Changing World?," World Development, Elsevier, vol. 63(C), pages 92-101.
    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.
    13. Assuncao, Juliano J. & Ghatak, Maitreesh, 2003. "Can unobserved heterogeneity in farmer ability explain the inverse relationship between farm size and productivity," Economics Letters, Elsevier, vol. 80(2), pages 189-194, August.
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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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