Description:

Sebastian Sardon (Northwestern): Trade, Land Consolidation, and Agricultural Productivity

Abstract: The agricultural sector features a large productivity gap between rich and developing countries, as well as substantial trade barriers inhibiting trade between them. I assess whether removing such barriers can boost productivity in the developing world, and if so, through which channels. Guided by a model of agricultural production with heterogeneous farms, I study a 1997 USDA ban lift on avocado exports from the Mexican state of Michoacan to the US. Using a triple-difference strategy and newly linked confidential census micro data (1971–2022), I find that the value of output per hectare increases by around 50% in treated areas suitable for avocado cultivation. Consistent with the model, large farms (those over 100 hectares) roughly double their share of total land in treated areas. In the model, land consolidates because large farms are the only ones who can afford the fixed costs of switching into avocados, which unlike the seasonal staples grown at baseline (mostly maize) require large amounts of water year-round.  I use remote sensing to build a georeferenced dataset of irrigation investment. My results indicate that investment is concentrated in areas experiencing both productivity growth and land consolidation. Finally, I find that these gains only occur in localities where land markets are not too frictional. In areas dominated by collective land tenure (ejidos), trade's effects on investment, consolidation, and productivity all fail to materialize.