The Size Distribution of Farms and International Productivity Differences

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-productive to small 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 with crop farm size. This measure and aggregate factors jointly account for more than 1/2 of the differences in size and productivity. Second, we quantify the effects of two specific policies in developing countries: (a) a land reform that imposes a ceiling on farm size and (b) a progressive land tax. We find that each individual policy generates a reduction of 3 to 7% in size and productivity.