Discussion Paper Details

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Title: Heterogeneity, Measurement Error, and Misallocation: Evidence from African Agriculture

Author(s): Douglas Gollin and Christopher Udry

Publication Date: January 2019

Keyword(s): agricultural development, agricultural production function estimation, Agricultural Productivity, firm productivity dispersion, Misallocation and productivity measurement

Programme Area(s): Development Economics and Macroeconomics and Growth

Abstract: Standard measures of productivity display enormous dispersion across farms in Africa. Crop yields and input intensities appear to vary greatly, seemingly in conflict with a model of efficient allocation across farms. In this paper, we present a theoretical framework for distinguishing between measurement error, unobserved heterogeneity, and potential misallocation. Using rich panel data from farms in Tanzania and Uganda, we estimate our model using a flexible specification in which we allow for several kinds of measurement error and heterogeneity. We find that measurement error and heterogeneity together account for a large fraction - as much as ninety percent -- of the dispersion in measured productivity. In contrast to some previous estimates, we suggest that the potential for efficiency gains through reallocation of land across farms and farmers may be relatively modest.

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Bibliographic Reference

Gollin, D and Udry, C. 2019. 'Heterogeneity, Measurement Error, and Misallocation: Evidence from African Agriculture'. London, Centre for Economic Policy Research.