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Article summary:
1. This article examines the extent and consequences of factor misallocation in agriculture in China, using farm-level panel data.
2. It finds that there are substantial within-village frictions in both the land and capital markets that disproportionately affect more productive farmers, reducing aggregate agricultural productivity.
3. The article also shows that reallocating factors across existing farmers within villages to their efficient use increases agricultural TFP by 24.4%, and allowing factor inputs to be allocated efficiently across villages increases it to 53.2%.
Article analysis:
The article “Misallocation, Selection, and Productivity: A Quantitative Analysis With Panel Data From China” by Adamopoulos (2022) is a well-researched and comprehensive analysis of the effects of misallocation on productivity in China’s agricultural sector. The author uses farm-level panel data from China to measure the extent of misallocation across farmers implied by land market institutions in China, as well as its consequences for occupational choices and agricultural productivity. The article provides a detailed description of the Household Responsibility System (HRS) established in rural China in the late 1970s and early 1980s, which dismantled collective management set up under Mao and extended use rights over farmland to rural households.
The author then proceeds to analyze the data using a heterogeneous firm-industry framework with minimal structure to measure deviations between marginal products and overall extent of inefficiency due to weak property rights in China. This approach addresses an array of measurement issues typically associated with cross-sectional analyses of misallocation in both agricultural and manufacturing settings, while virtually eliminating additive measurement error relative to a cross-sectional measure of distortions.
The results show that reallocating factors across existing farmers within villages to their efficient use increases agricultural TFP by 24.4%, while allowing factor inputs to be allocated efficiently across villages increases it to 53.2%. Furthermore, when embedded into a two-sector model, distortions have an additional increase on agricultural TFP of 1.5-fold due to selection effects quadrupling the impact of reduced misallocation on agricultural productivity.
In conclusion, this article is reliable and trustworthy due its comprehensive research methodology which includes detailed descriptions of relevant policies as well as quantitative analysis based on farm-level panel data from China which addresses an array of measurement issues typically associated with cross-sectional analyses of misallocation in both agricultural and manufacturing settings.