Abstract: There are striking differences in the size distribution of farms between rich and poor countries. We study the determinants of farm-size across countries and their impact on agricultural and aggregate productivity by developing a quantitative model of agriculture and non-agriculture that features a non-degenerate size distribution of farms. We find that differences in measured aggregate factors such as capital, land, and economy-wide productivity account for 1/4 of the observed differences in farm size and productivity. Farm-level policies that misallocate resources from large and productive farms to small and less productive farms are prevalent in poor countries and have the potential to account for the remaining differences. We assess the quantitative importance of misallocation in two ways. First, we construct a summary measure of farm-size distortions across countries by exploiting within-country variation in crop-specific price distortions and their correlation with crop farm size. This measure and aggregate factors jointly account for more than 1/2 of the cross-country differences in size and productivity. Second, we quantify the effects of specific policies in developing countries: a land reform that imposes a ceiling on farm size and a progressive land tax. We find that each individual policy generates a reduction of 3 to 7 percent in size and productivity.
Keywords: Aggregate productivity, agriculture, farm-size distortions, misallocation.
JEL Classification: O11; O13; O4; E0