Agricultural misallocation, occupational choice and aggregate productivity

The role of insecure land rights and missing financial markets

Dr Jan Grobovsek, University of Edinburgh

Start: Sep 2014  |  End: Aug 2017

Research Councils UK project page

Discussion paper: Communal Land and Agricultural Productivity

Compared to advanced economies, most of the Least Developed Countries feature extremely low agricultural labour productivity, while productivity in non-agriculture is only modestly low.

This low agricultural productivity can be partly explained by misallocation of production factors, in particular of land across farms - e.g. some farms use too much land and others too little. When comparing incomes of workers in agriculture and non-agriculture, it is difficult to understand why so many workers remain in agriculture, indicating misallocation across occupations.

This research project will first identify causes of this misallocation. Second, we intend to understand how policies that diminish misallocation could change agricultural, non-agricultural and, ultimately, aggregate productivity i.e. by how much could they potentially increase GDP.

We are also interested in the welfare effects of such policies on individuals with distinct characteristics (by skill, wealth, gender, age, occupation, etc.). Who stands to gain and who may lose?

Conducting research in Ethiopia and Uganda -  countries which are both categorised by a high fraction of land subject to insecure tenure and underdeveloped financial markets - we will collect data via a social survey.

Research will use structural general equilibrium model economies for analysis. In such models, decisions of distinct individuals and the formation of prices are all interdependent. This is crucial, because our proposed policy changes may alter the decisions of many individuals, which in turn affects relative prices and creates even more economic shifts. Our approach takes into account such feedback effects and is hence an ideal tool to understand what would happen if policies were to change.