Rural Market Imperfections and the Farm Size-Productivity Relationship : Evidence from Pakistan

This article analyzes the relationships between farm size and productivity and between farm size and profitability. A framework is set out to explain the inverse farm size--productivity relationship based on imperfections in the markets for labor, land, credit and risk. Hypotheses are derived and tested on a recent farm-level panel data from Pakistan. A strong inverse relationship between farm size and yield is found. This holds even when household fixed effects are used to account for unobserved heterogeneity, a novel feature of the paper. The market imperfections framework is consistent with the data