DP13433 Heterogeneity, Measurement Error, and Misallocation: Evidence from African Agriculture

Author(s): Douglas Gollin, Christopher Udry
Publication Date: January 2019
Date Revised: January 2019
Keyword(s): agricultural development, agricultural production function estimation, Agricultural Productivity, firm productivity dispersion, Misallocation, productivity measurement
JEL(s): O11, O12, O13, Q12
Programme Areas: Development Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13433

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.