This year, STEG welcomed Diego Restuccia (Professor of Economics, University of Toronto) to present his paper, "From Micro to Macro: Land Institutions, Agricultural Productivity, and Structural Transformation".
I study the aggregate and distributional implications of restrictive land-market institutions that are prevalent in poor and developing countries. First, I broadly review the evidence of misallocation in agriculture and its connection with land institutions. Second, I develop a two-sector general equilibrium model of agriculture and non-agriculture within a local economy where individuals are heterogeneous in their sectoral ability, endowed with an amount of land in agriculture, and face distorted land markets. I calibrate a benchmark distorted economy to micro and sectoral data from Ethiopia and study the effect of a land rental-market reform that facilitates land reallocation. The land reform directly increases measured agricultural TFP by 26 percent due to reduced misallocation, but agricultural labor productivity increases substantially by 285 percent due to improved selection of occupational choices and a strong acceleration of the process of structural transformation. The land rental-market reform also attains a substantial reduction in poverty and rural income inequality in the medium term. Third, I discuss the implications of these results for policy considerations.