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Misallocation in Indian Agriculture

Marijn Bolhuis (), Swapnika Rachapalli and Diego Restuccia ()

Working Papers from University of Toronto, Department of Economics

Abstract: We exploit substantial variation in land-market institutions across Indian states and detailed micro household-level panel data to assess the effect of distortions in land rental markets on agricultural productivity. We provide empirical evidence that states with more rental-market activity feature less misallocation and reallocate land more efficiently over time. We develop a model of heterogeneous farms and land rentals to estimate land-market distortions in each state. Land rentals have substantial positive effects on agricultural productivity: an efficient reallocation of land increases agricultural productivity by 38 percent on average and by more than 50 percent in states with highly distorted rental markets. Both farm and state-level land market distortions are quantitatively important, with state-level wedges accounting for a significant fraction of rental market participation differences across states. Land market distortions contribute about one-third to the large differences in agricultural total factor productivity across Indian states.

Keywords: Productivity; agriculture; distortions; land rentals; states; India. (search for similar items in EconPapers)
JEL-codes: E01 E13 O11 O14 O4 O5 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2021-10-05
New Economics Papers: this item is included in nep-agr, nep-dev, nep-eff and nep-mac
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