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Agricultural productivity, skill investment, farm size distribution, income differences.

Cai, Wenbiao (2011): Agricultural productivity, skill investment, farm size distribution, income differences.

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Abstract

Cross-country differences in agricultural productivity dwarf those in the aggregate. This paper presents a theory in which low aggregate productivity distorts skill formation of farmers. A model in the style of Lucas (1978) is extended to allow skill accumulation. Differences in skill magnify the differences in agricultural productivity. The model is calibrated to the US to reproduce the size distribution of farms and the time allocation of farmers. Given exogenous differences in total factor productivity (TFP), the model explains 45-50% of the differences in agricultural output per worker. Moreover, differences in farmer’s skill accounts for about 30% of the variation in agricultural productivity. The model also maps the latent distribution of skill to a size distribution of farms, which is observable. The model is able to resemble salient features of the cross-country distribution of farm size.

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