The Inverse Relationship between Farm Size and Productivity: Refocusing the Debate

The relationship between farm size and productivity is a recurrent topic in development economics, almost as old as the discipline itself. This paper emphasizes the importance of choice of productivity measures in the inverse relationship literature. First, we seek to clarify the common measures, their relationships, and their advantages and limitations in empirical work. Second, we argue that much of the existing literature inappropriately uses partial measures such as land productivity. Third, we discuss the dynamic nature of the farm size – productivity relationship and show that the identification of these dynamics will in part depend upon the choice of productivity measure. Lastly, using a pseudo-panel of Brazilian farms that are aggregated at the municipality and farm size levels over the period 1985-2006, we provide new empirical evidence on the inverse relationship between farm size and both land productivity and total factor productivity. The empirical exercise highlights the importance of choice of measure when testing the inverse relationship. The inverse relationship between size and land productivity is alive and well. The relationship between total factor productivity and size, in contrast, has evolved with modernization during this period, becoming increasingly U-shaped or even positive.