Are Small Farms Really more Productive than Large Farms?

Fernando M. Aragon Sanchez, Diego Restuccia, Juan Pablo Rud

NBER Working Paper No. 26331
Issued in September 2019, Revised in September 2020
NBER Program(s):Development Economics, Economic Fluctuations and Growth, Productivity, Innovation, and Entrepreneurship

In this paper we show that the study of the farm size-productivity relationship hinges on the choice of productivity measure. Our main insight is that using yields, a partial measure of productivity, may not be informative for the size-productivity relationship because, in addition to total factor productivity, yields pick up input markets distortions and deviations from constant returns to scale. We examine the empirical relevance of this insight using detailed microdata from Uganda. We find an inverse relationship between yields and farm size. We show the relationship turns positive when accounting for market distortions and returns to scale; or when using a farm-specific component of total factor productivity.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w26331