Land market distortions: Theory and evidence from Guatemala

Farm size and land allocation are important factors in explaining lagging agricultural productivity in developing countries. This paper formally examines the effect of land market distortions on the allocation of land across farmers and overall agricultural productivity. We first develop a theoretical framework to model the optimal size distribution of farms and assess to what extent market distortions can explain non-optimal land allocation and output inefficiency. We then calibrate the model to the case of Guatemala and evaluate potential drivers of the distortions across locations. We find that aggregate agricultural productivity across regions is over the range of 54-95% of the efficient output for different major crops considered. We evaluate alternative factors correlated with these distortions and provide some policy recommendations to improve efficiency. Acknowledgement : We thank the Instituto Nacional de Estadistica (INE) and the Secretaria de Seguridad Alimentaria y Nutricional (SESAN) of Guatemala for their help in accessing and collecting part of the data used in the analysis. Francisco Ceballos provided excellent research assistance. All errors are our own