Abstract
This paper examines the role that land quality and imperfect markets play in generating the inverse productivity relationship in the International Crop Research Institute for the Semi Arid Tropics (ICRISAT) data. Differences in land quality largely explain the “Inverse Productivity” (IP) relationship in the random effects profit regression, but not in labor demand regressions. Controlling for labor and land market failures and differences in soil quality eliminates the IP relationship for male labor, but not female labor in the random effects estimates. The inverse relationship is much stronger in fixed effects than random effects estimates, suggesting that the farm size variable may be subject to measurement error, a view supported by the results of instrumental variables estimation.
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