Dynamics of Farm Size‐Productivity Relationship: Evidence From Semi‐Arid Tropics of India, 1975–2014

ABSTRACT This paper presents new evidence on the relationship between farm size and productivity in India's semi‐arid tropics, utilizing four decades of data (1975–2014) from ICRISAT's village level studies (VLS). In the context of the agricultural development of India's semi‐arid tropics, this period has been associated with a surge in capital‐intensive farming practices and declining crop diversity. We present novel evidence on temporal evolution in the farm size‐productivity and farm size‐efficiency relationship over this period. We control for potential endogeneity of operated land and input use in agriculture by employing fixed effects panel estimation with OLS as well as IV‐GMM estimator in the case of productivity analysis and panel SFA for estimating technical inefficiency. We find that, for both measures of productivity—output value per acre and profit per acre—the inverse farm size‐productivity relationship has weakened over time, coinciding with the persistent crisis in Indian agriculture. We also find that smallholders operate at a lower level of technical efficiency in value of output per acre but not in terms of profit per acre when compared to their larger counterparts. Furthermore, we find that crop diversification has a negative association with both productivity and technical efficiency. Our findings have implications for the agricultural development policy of the semi‐arid tropics.