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Input Substitution, Productivity Performance and Farm Size
Author(s) -
Sheng Yu,
Davidson Alistair,
Fuglie Keith,
Zhang Dandan
Publication year - 2016
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.12136
Subject(s) - substitution (logic) , productivity , economics , elasticity of substitution , technical change , substitution effect , total factor productivity , econometrics , dual (grammatical number) , agriculture , agricultural productivity , production (economics) , microeconomics , macroeconomics , computer science , ecology , art , literature , programming language , biology
This paper develops a theoretical model to examine the relationship between the input elasticity of (technical) substitution and both farm total factor productivity and size. In the presence of ongoing technical change and its factor bias, the ‘income effect’ arising from farms' cost minimising behaviour enables them to increase productivity by saving inputs or, through the dual equivalent, enlarging farm size. As such, farms with higher elasticities of substitution tend to grow larger and become more productive, which provides a new mechanism through which farm heterogeneity in productivity growth can be examined. Empirical evidence from Australian broadacre agriculture supports this theory and points to important policy implications.