The inverse relationship between farm size and productivity: Refocusing the debate

Abstract

The relationship between farm size and productivity is a recurrent topic in development economics, almost as old as the discipline itself. This paper emphasizes the importance of choice of productivity measures in the inverse relationship literature. First, we seek to clarify the common measures, their relationships, and their advantages and limitations in empirical work. Second, we argue that much of the existing literature inappropriately uses partial measures such as land productivity. Third, we discuss the dynamic nature of the farm size -productivity relationship and show that the identification of these dynamics will in part depend upon the choice of productivity measure. Lastly, using a pseudo-panel of Brazilian farms that are aggregated at the municipality and farm size levels over the period 1985-2006, we provide new empirical evidence on the inverse relationship between farm size and both land productivity and total factor productivity. The empirical exercise highlights the importance of choice of measure when testing the inverse relationship. The inverse relationship between size and land productivity is alive and well. The relationship between total factor productivity and size, in contrast, has evolved with modernization during this period, becoming increasingly U-shaped or even positive.

A revisit of farm size and productivity: Empirical evidence from a wide range of farm sizes in Nigeria

“… 1 In other regions such as Latin America, the farm size-productivity relationship has been more extensively examined over a wide range of farm sizes (e.g., Rada et al, 2019; Helfand and Taylor, 2020 ). …”

The Farm Size – Productivity Relationship in the Wake of Market Reform: An Analysis of Mexican Family Farms

“…As discussed in Helfand and Taylor (2021), land productivity is a partial measure of productivity and does not account for the use of inputs other than land. Where other inputs are used in production, failing to account for the use of those resources potentially introduces bias into estimates of the relationship between farm size and productivity if the intensity of input use (inputs per hectare) varies with farm size.…”

“…As is standard in the literature, we identify TFP by estimating a Cobb-Douglas production function with inputs measured per hectare, implicitly imposing constant returns to scale on the production technology. In such a setting, the inclusion of a measure of farm size as an explanatory variable identifies any relationship between farm size and TFP (Helfand and Taylor, 2021). Any deviation from constant returns to scale is effectively forced into the farm size term so that the estimated farm size -TFP relationship includes any non-constant returns to scale.…”

“…After removing such households, we eliminate outliers by trimming the extremes of the farm size and land productivity distributions. Of principle importance is any relationship between inputs per hectare and farm size, as systematic relationships between input intensity and farm size potentially drive a wedge between the farm sizeland productivity and farm sizetotal factor productivity relationships (Helfand and Taylor, 2021). We calculate the correlation coefficients between logged input per hectare and logged farm size for those farms with non-zero values of usage of each input.…”

“…Empirical studies have typically found that existing theory fails to fully explain the observed inverse relationship, generating a body of mixed and at times contradictory evidence. Helfand and Taylor (2021) illustrate how the choice of productivity measure can alter the relationship observed and how it can obscure a changing relationship between farm size and total factor productivity, the more relevant productivity measure. They find a dynamic relationship between farm size and total factor productivity in the rapidly modernizing agricultural regions of Brazil, contributing to an emerging literature that documents changing farm sizeproductivity relationships as agricultural sectors modernize and develop (Foster and Rosenzweig, 2017;Deininger et al, 2018;Rada and Fuglie, 2019).…”