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Skill investment, farm size distribution and agricultural productivity

Cai, Wenbiao (2011): Skill investment, farm size distribution and agricultural productivity.

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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 U.S. 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 farmers' skills account for about 30% of the variation in agricultural productivity. The model also maps the latent distribution of skill to a size distribution of farms, and is able to resemble salient features of the cross-country distribution of farm size.

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