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Skill Investment, Farm Size Distribution and Agricultural Productivity

Cai, Wenbiao (2010): Skill Investment, Farm Size Distribution and Agricultural Productivity.

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This paper quantitatively explains high labor share, low productivity and small farm size in agriculture of low income countries. I develop a variation of Lucas' span-of-control model. Specifically, I allow skill to grow over time as a result of optimal investment in a two-sector OLG model. The calibrated model is consistent with key features of the farming sector in the U.S. Given exogenous differences in nonagricultural productivity and land endowment, for a sample 40 countries, the model can explain almost all of the differences in agricultural productivity, and about 80% of the differences in labor allocation between the top and bottom quintile countries. Endogenously generated farm size distributions are close to actual ones for a large number of countries.

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