Main channels associated with losses in aggregate productivity
The technology channel
affects the productivity of various production units
The selection channel
affects the number of operating production units
The misallocation channel
Drives the allocation of capital and labor
among operating production units away from an
efficiency benchmark
Land market imperfections
Problems and Solutions
More investment in technology
Farmers without rental
markets have greater degree
of resource misallocation
than those with rental
markets
average farm in Ethiopia is 18.3% more likely
to use fertilizer and 20.6% more likely to use
livestock
Spillover and learn-by-doing effects
Dynamic benefits to the technology frontier
Policy Imperfection
Ceilings/size constraint/progressive
land taxes
Insecure Property Rights
inheritance norms and
redistribution
Resource misallocation
dispersion of TFPR
Associated with the capital
and resource misallocation in
the agricultural sectors
Selection channel:
 Climate shocks
○ Detrimental effect on productivity
○ Raising costs associated with climate adaptation
○ Increase of 1 degree Celsius in the average temperature above the optimal threshhold reduces productivity by 9%.
○ In response to climate, farmers may tend to increase (instead of decreasing) their land use without reducing labor use, especially in the regions with lessdeveloped land markets
○ Negative climate shocks can exacerbate allocative inefficiency in environments with imperfect input markets
○ Sol: 1. Reallocating resources from agriculture to other productive uses may attenuate the negative productivity effects of climate change, but imperfect
markets might hinder this reallocation
○ 2. introduction of digital techs to implement EWS (early warning systems) and provide timely information on natural disasters can contribute in the
management to weather shocks.
○ 3. property rights appear to matter for adaptive behaviour
○ Policy
ISPs have yielded short-term benefits for national production and food security. However, their impacts have been weakened by poor crop response to fertilizer
implementation features that weaken the programs’ contribution to broader fertilizer use.8 Low crop response to fertilizer has also impeded the growth of
commercial demand for fertilizer in Africa, and the ISPs have further crowded out the development of commercial distribution channels
Fertilizer subsidy programs were largely ineffective in contributing to agricultural productivity growth, food security, or poverty reduction in the 1980s and 1990s.
Instead, they placed a major fiscal burden on African governments.
Fertilizer subsidy programs in the region also led to corruption and state paternalism, often hindering the development of commercial input distribution systems
and contributing to local supply gluts that put political pressure on governments to implement costly grain purchases and price-support policies for farmers.