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Distortions, Producer Dynamics, and Aggregate Productivity: A General Equilibrium Analysis

Author

Listed:
  • Stephen Ayerst
  • Loren Brandt
  • Diego Restuccia
Abstract
In less developed economies the allocation of factor inputs to more productive farms is often hindered. To analyze how distortions to factor reallocation affect farm dynamics and agricultural productivity, we develop a model of heterogeneous farms that make cropping choices and invest in productivity improvements. We calibrate the model using detailed farm-level panel data from Vietnam, exploiting regional differences in agricultural institutions and outcomes. We focus on south Vietnam and quantify the effect of higher measured distortions in the North on farm choices and agricultural productivity. We find that the higher distortions in north Vietnam reduce agricultural productivity by 41%, accounting for 61% of the observed 2.5-fold difference between regions. Moreover, two-thirds of the productivity loss is driven by farms' choice of lower productivity crops and reductions in productivity-enhancing investment, which more than doubles the productivity loss from static misallocation.

Suggested Citation

  • Stephen Ayerst & Loren Brandt & Diego Restuccia, 2024. "Distortions, Producer Dynamics, and Aggregate Productivity: A General Equilibrium Analysis," Working Papers tecipa-775, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-775
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    References listed on IDEAS

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    1. Stephen Ayerst & Duc M. Nguyen & Diego Restuccia, 2024. "The Micro and Macro Productivity of Nations," NBER Working Papers 32750, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Farm dynamics; productivity; size; distortions; misallocation; Vietnam.;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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