Agriculture in lower-income countries tends to be less productive than agriculture in higher-income countries. Farms which are not operating at or near optimal productivity are examples of lost potential earnings. The exact frictional reasons behind this gap are extremely difficult to pinpoint and, without these, researchers have struggled to quantify how much these frictions affect economies. Therefore, this is an essential yet understudied area of research. In this project, the impacts of the gap will be estimated without a focus on specific frictions. This allows for a determination of the importance of the gap between lower- and higher-income countries, separate from concerns about excluding or including particular market frictions.
The researchers use household-level survey data to understand the productivity of farms in Nigeria. The government heavily invests in the agricultural sector in Nigeria, so understanding the returns are particularly important. Because this is a situation of market failures, as the system is not at optimal productivity, classical economic models do not entirely fit the context. The researchers will work to adjust the well-known Cobb-Douglas production function to understand the impacts of under-efficient farming. They will also use data from offering agricultural workers purchase of bonds at different levels of interest rates to explore farmer expenditure priorities.
In lower-income countries, a large share of the population tends to be employed in agricultural work. Yet these agricultural sectors often have proportionately lower contributions to the nation's economy despite the large labour force, due to a lack of optimal efficiency in farming. This is particularly evident in comparison to higher-income countries, where agricultural productivity is considerably higher. It is important to find out how much this agricultural productivity gap is affecting economic growth in poorer nations. This project will inform whether productivity gaps and structural change in agriculture should be a focus for policy development.