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Working paper 647

Fernando Aragon, Diego Restuccia, Juan Pablo Rud, "Are Small Farms Really more Productive than Large Farms?", 2019-09-24
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Abstract: We revisit the long-standing empirical evidence of an inverse relationship between farm size and productivity using rich microdata from Uganda. We show that farm size is negatively related to yields (output per hectare), as commonly found in the literature, but positively related to farm productivity (a farm-specific component of total factor productivity). 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 the role of farm-specific distortions and returns to scale in traditional farm production. We exploit unique 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 farm size-productivity relationship. More generally, we demonstrate the limitation of using farm size in guiding policy applications.

Keywords: Farm size, productivity, yields, land markets, distortions, agriculture, policy, regions, technology.

JEL Classification: O4, O5, O11, O12, O13, E02, E13, Q15, Q18, C33, C55, D24.