Working Paper 754 - Distortions, Producer Dynamics, and Aggregate Productivity - A General Equilibrium Analysis

Oct 17, 2026

Uploaded by Finn

The document studies why distortions to factor-input allocation shape farm dynamics and agricultural productivity differently across developed versus less developed economies. It develops a heterogeneous-farm general equilibrium model where farms choose crops and invest in productivity improvements, then calibrates it with detailed farm-level panel data from Vietnam. Using regional institutional differences, it shows that higher distortions in northern Vietnam reduce productivity by 47%, explaining most observed cross-region gaps, mainly via crop choice and lower productivity-enhancing investment rather than only static misallocation.

LanguageEnglish

CategoryResearch & Report

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Pages66

Reading Time2 h 46 min

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Abstract

1 Introduction

University of Toronto Department of Economics Working Paper 754 Distortions, Producer Dynamics, and Aggregate Productivity: A General Equilibrium Analysis By Stephen Ayerst, Loren Brandt and Diego Restuccia August 18, 2023 Distortions, Producer Dynamics, and Aggregate Productivity: A General Equilibrium Analysis ∗ Stephen Ayerst† Loren Brandt‡ Diego Restuccia § August 2023 Abstract The expansion in farm size is an important contributor to agricultural productivity in developed countries where more productive farms are larger, but in less developed economies the allocation of factor inputs to more productive farms is hindered. How do distortions to factor-input allocation affect farm dynamics and agricultural productivity? We develop a model of heterogeneous farms making cropping choices and investing in productivity improvements. We calibrate the model using detailed farm-level panel data from Vietnam, exploiting regional differences in agricultural institutions and outcomes. We focus on south Vietnam and quantify the effect of higher measured distortions in the North on farm choices and agricultural productivity. We find that the higher distortions in north Vietnam reduce agricultural productivity by 47%, accounting for 70% of the observed 2 .5-fold difference between regions. Moreover, two-thirds of the productivity loss is driven by farms’ choice of lower productivity crops and reductions in productivity-enhancing investment, which more than doubles the productivity loss from static factor misallocation. Keywords: Farm dynamics, productivity, size, distortions, misallocation, Vietnam. JEL classification: O11, O14, O4 . ∗We thank Tasso Adamopoulos for help with the grid land-quality data for Vietnam. For useful comments we thank Costas Azariadis, Marco Bassetto, Anmol Bhandari, Dan Cao, Julieta Caunedo, V. V. Chari, Klaus Desmet, Mark Huggett, David Lagakos, Toshi Mukoyama, Richard Rogerson, Kjetil Storesletten, Mike Waugh, Kirk White, Zoltan Wolf, and seminar participants at Georgetown, UBC, ASU Herrendorf memorial conference, the US Census, Minnesota, and Melbourne. All remaining errors are our own. Restuccia gratefully acknowledges the support from the Canada Research Chairs program and the Bank of Canada Fellowship program. The views expressed herein are those of the authors and should not be attributed to the Bank of Canada or its Governing Council, nor the IMF, its Executive Board, or its management. †International Monetary Fund, [stephen.b.ayerst@gmail.com](stephen.b.ayerst@gmail.com). ‡University of Toronto, [loren.brandt@utoronto.ca](loren.brandt@utoronto.ca). § University of Toronto and NBER, [diego.restuccia@utoronto.ca](diego.restuccia@utoronto.ca). 1 Introduction The reallocation of resources across businesses is a salient feature of the growth process in developed economies: successful businesses expand, while unsuccessful businesses contract and even exit (Baily et al. , 1992; Davis et al. , 1998; Foster et al. , 2001), contributing to amore efficient allocation of resources across producers. Business dynamism is also observed in the agricultural sector in developed countries where land consolidation and farm exit are important drivers of productivity (Key, 2019) . In sharp contrast, the allocation of resources across producers is hindered in less developed countries by a variety of regulations, policies, and institutions (Adamopoulos and Restuccia, 2014; Restuccia and Rogerson, 2017) . In this paper, we examine how distortions to factor allocation affect agricultural productivity and growth in the context of a model of farm heterogeneity and dynamics. Exploiting farmlevel panel data from Vietnam and regional differences in agricultural institutions, we find substantial differences in agricultural productivity, farm dynamics, and crop choice across regions, most of which can be accounted for by measured differences in distortions. Vietnam agriculture offers a valuable cont

FAQs

What question does the paper focus on regarding distortions and productivity?

It asks how distortions to factor-input allocation affect farm dynamics and agricultural productivity, especially across regions with different institutions.

How is the model of farms structured?

It uses a dynamic heterogeneous-farm general equilibrium model where farms make cropping choices and invest in productivity improvements.

What are the main findings about why productivity differs between northern and southern Vietnam?

Higher distortions in the north reduce agricultural productivity substantially, driven largely by farms switching to lower-productivity crops and cutting productivity-enhancing investment.

Oct 17, 2026

Uploaded by Finn