Labor Market Performance and the Farm Size-Productivity Relationship in Rural India
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In this paper, we use a three-round farm-level panel from rural India to explore the existence and evolution of the inverse relationship between farm size and productivity that has been found in a large empirical literature. While present throughout, the inverse relationship weakened significantly over time; the estimated elasticity of productivity with respect to farm size increased from 0.73 to 0.95 from 1982 to 2007. Key drivers are better functioning labor markets and a narrowing of efficiency differences between own and hired labor, possibly due to greater use of machinery. Structural transformation and a transition towards larger farms thus did not hurt productivity and economic efficiency.