Reconsidering Conventional Explanations of the Inverse Productivity-Size Relationship
38 Pages Posted: 30 Sep 2008 Last revised: 24 May 2011
Date Written: June 13, 2009
The inverse productivity-size relationship is one of the oldest puzzles in development economics. Two conventional explanations for the inverse relationship have emerged in the literature: (i) factor market imperfections that cause cross-sectional variation in household-specific shadow prices and thereby induce variation in input application rates; and (ii) the omission of soil quality measurements that are inversely correlated with farm or plot size but positively associated with yields. This study uniquely employs precise soil quality measurements at the plot level with multiple plots per household so as to allow testing of both conventional explanations simultaneously. Our empirical results show that, in these data, only a small portion of the inverse productivity-size relationship is explained by market imperfections and none of it seems attributable to the omission of soil quality measurements.
Keywords: Inverse Relationship, Productivity, Market Failures, Soil Characteristics, Sub-Saharan Africa, Madagascar
JEL Classification: D24, O12, O13, Q12
Suggested Citation: Suggested Citation