Brazil’s Agricultural Total Factor Productivity Growth by ...

1 Brazil s Agricultural Total Factor Productivity Growth by Farm SizeSteven M. HelfandMarcelo M. Magalh esNicholas E. RadaIDB WORKING PAPER SERIES N 609 September 2015 Environment, Rural Development and Disaster Risk Management DivisionInter-American Development BankSeptember 2015 Brazil s Agricultural Total Factor Productivity Growth by Farm SizeSteven M. Helfand* Marcelo M. Magalh es** Nicholas E. Rada** University of California, Riverside ** Universidade Estadual Paulista, Tup ** Economic Research Service, USDAC ataloging-in-Publication data provided by the Inter-American Development Bank Felipe Herrera Library Cataloging-in-Publication data provided by the Inter-American Development Bank Felipe Herrera Library Helfand, Steven M.

2 Brazil s Agricultural Total Factor Productivity Growth by farm size / Steven M. Helfand, Marcelo M. Magalh es, Nicholas E. Rada; Carlos Eduardo Ludena, C sar A. Falcon , editores. p. cm. (IDB Working Paper Series ; 609) Includes bibliographic references. 1. Farms, Size of Brazil. 2. Agriculture and state Brazil. 3. Agricultural Productivity Brazil. 4. Industrial Productivity Brazil. I. Magalh es, Marcelo M. II. Rada, Nicholas E. III. Lude a, Carlos Eduardo, editor. IV. Falcon , C sar A., editor. V. Inter-American Development Bank. Environment, Rural Development Disaster Risk Management Division. VI. Title. VII. Series.

3 IDB-WP-609 Contact author: Steven Helfand, Inter-American Development Bank. This work is licensed under a Creative Commons IGO Attribution-NonCommercial-NoDerivatives (CC-IGO BY-NC-ND IGO) license ( ) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.

4 Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.

5 Note that link provided above includes additional terms and conditions of the license. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. This document was prepared under funding of the project Agricultural Productivity Growth in Latin America and the Caribbean (RG-K1351) coordinated by C sar Falconi, Carlos Ludena and Pedro Martel of the Inter-American Development Bank (DB). The authors would like to thank Carlos Ludena and participants at the November 24, 2014 IDB seminar on Agricultural Productivity in LAC for their comments that helped improve the final version of the manuscript.

6 They also thank the S o Paulo Research Foundation (FAPESP) for supporting Marcelo M. Magalh es participation in this project. Cite as: Helfand, , Magalh es and Rada. 2015. Brazil s Agricultural Total Factor Productivity Growth by Farm Size. Inter-American Development Bank Working Paper No. 609 (IDB-WP-609), Washington DC. i Table of Contents 1. Introduction 1 2. Methodology 2 Stochastic Frontier Setting 2 Econometric Specification 4 3. Data and Variable Construction 4 Output Index 5 Input Indices 6 Land 6 Family Labor 6 Capital Stock 7 Purchased Inputs 8 Missing Values 8 4. Descriptive Statistics 9 Number of Farms, Area and Output 9 Analysis by Region and Farms Size: Outputs and Inputs 11 Municipal Level Data on Output and Inputs for the Econometric Analysis 17 5.

7 Econometric Results 21 Specification Tests 21 National and Regional Productivity Growth 26 National Productivity Growth by Farm Size 29 Regional Productivity Growth by Farm Size 32 North Region 32 Northeast Region 34 Southeast Region 36 South Region 38 Center-West Region 40 Robustness of the Results 42 Data Aggregation 42 Outliers 43 Unobserved Heterogeneity 45 Output versus Farm-Number Estimation Weights 46 Decomposition of Purchased Inputs 47 6. Conclusions and Policy Implications 50 7. References 52 8. Appendix Tables 55 i Tables Table 1: Number of Farms, Area, and Value of Output by Region and Farm Size: 2006 ..10 Table 2: Variation of Outputs and Inputs for Brazil and Macro-Regions: 1985-06 (percent).

8 12 Table 3: Variation of Outputs and Inputs by Farm Size and Region: 1985-06 (percent) ..15 Table 4: Descriptive Statistics of AMC Level Changes for Brazil and Selected Regions: 1985-06 (percent) ..18 Table 5: Descriptive Statistics of AMC Level Changes by Farm Size: 1985-06 (percent) ..20 Table 6: Specification Tests at Country Level ..22 Table 7: Elasticities for the Translog Production Frontier ..23 Table 8: Specification Tests of Pooled vs. Regional Table 9: Specification Tests of Pooled vs. Farm size Models ..25 Table 10: Total Factor Productivity Growth Decomposition in Brazil and by Macro Region 1985-2006 (percent per year).

9 27 Table 11: Total Factor Productivity Growth Decomposition in Brazilby Farm Size, 1985-2006 (percent per year) ..30 Table 12: Total Factor Productivity Growth Decomposition by Farm Size in the North Region of Brazil, 1985-2006 (percent per year) ..33 Table 13: Total Factor Productivity Growth Decomposition by Farm Size in the Northeast Region of Brazil, 1985-2006 (percent per year) ..35 Table 14: Total Factor Productivity Growth Decomposition by Farm Size in the Southeast Region of Brazil, 1985-2006 (percent per year) ..37 Table 15: Total Factor Productivity Growth Decomposition by Farm Size in the South Region of Brazil, 1985-2006.

10 39 Table 16: Total Factor Productivity Growth by Farm Size in the Center West Region of Brazil, 1985-2006 (percent per year) ..41 ii Figures Figure 1. Total Factor Productivity Growth in Brazil: The Influence of Alternative Levels of Data Aggregation (1985-2006, percent per year) ..43 Figure 2. Total Factor Productivity in Brazil: The influence of Outlier ..44 Figure 3. Total Factor Productivity in Brazil: The Influence of Unobserved Heterogeneity at Different Levels (1985-2006, percent per year) ..46 Figure 4. Total Factor Productivity Growth in Brazil: The Influence of Alternative Weights ..48 Figure 5.