In the leading explanations for the oft‐observed inverse relationship (IR) between farm size and productivity in developing country agriculture, labour market imperfections have commonly occupied a central role. However, an emerging literature suggests that disparities in technical or allocative efficiency may be driving productivity differentials. Using nationally‐representative panel data from Nicaragua, we develop and employ a four‐stage empirical framework to simultaneously test the competing explanations for the IR. While efficiency differences exert a significant impact on all productivity indicators, their explanatory power is insufficient to rule out labour market imperfections as the driving force behind the relationship.

We examine the relationship between the sectoral composition of economic growth and the rural-urban composition of poverty. To this end, we use a new cross-country panel dataset consisting of 146 rural and urban poverty "spells" for 71 low-and middle-income countries. We find that rural (urban) poverty is highly responsive to agricultural (non-agricultural) productivity growth. The effect of agricultural productivity growth on rural poverty is particularly strong for countries with little dependence on natural resources. We also find that growth in the share of employment in the non-agricultural sector (i.e., structural transformation) reduces rural poverty, most notably for countries with a low initial level of development. These findings are robust to changes in key assumptions, including using alternative poverty lines. Finally, we use our estimates to examine the historical contribution of different sources of economic growth to rural and urban poverty reduction. JEL Codes: O11, O47 #1533 AbstractWe examine the relationship between the sectoral composition of economic growth and the ruralurban composition of poverty. To this end, we use a new cross-country panel dataset consisting of 146 rural and urban poverty "spells" for 71 low-and middle-income countries. We find that rural (urban) poverty is highly responsive to agricultural (non-agricultural) productivity growth. The effect of agricultural productivity growth on rural poverty is particularly strong for countries with little dependence on natural resources. We also find that growth in the share of employment in the nonagricultural sector (i.e., structural transformation) reduces rural poverty, most notably for countries with a low initial level of development. These findings are robust to changes in key assumptions, including using alternative poverty lines. Finally, we use our estimates to examine the historical contribution of different sources of economic growth to rural and urban poverty reduction.

Empirical studies of agrarian production in developing countries often find that small farms possess a productivity advantage over larger farms. Eswaran and Kotwal (1986) famously derive this inverse farm‐size/productivity relationship from the structure of agrarian production. The focal prediction of their model is that, in otherwise equivalent economies, a more egalitarian land distribution raises both output and producer welfare. The traditional (spot) procurement system implicit in the Eswaran and Kotwal model, however, diverges fundamentally from modern (contractual) procurement practices. We therefore develop a new model of agrarian production in order to determine whether the introduction of a modern value chain alters the welfare effects of land redistribution. The inverse farm‐size/productivity relationship persists in our model, but we find that more egalitarian land distribution leads to nonmonotonic changes in producer welfare. We also find that the introduction of a modern sector can harm the laboring classes.

We argue that building agent-based and equation-based versions of the same theoretical model is a fruitful way of gaining insights into real-world phenomena. We use the epistemological concept of "models as isolations and surrogate systems" as the philosophical underpinning of this argument. In particular, we show that agent-based and equation-based approaches align well when used simultaneously and, contrary to some common misconceptions, should be considered complements rather than substitutes. We illustrate the usefulness of the approach by examining a model of the long-run relationship between economic development and inequality (i.e., the Kuznets hypothesis).

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