IS SMALL STILL BEAUTIFUL? 3
on small farms compared with hired labor on larger farms. Multiple studies, however, have called into question the absolute efficiency advantage of small farms (Helfand and Levine 2004; Barret, Bellemare, and Hou 2010). Tese researchers have argued that larger commercial farms have an advantage in terms of finance, technology, and logistics and that the inverse relationship disappears above a certain farm size or aſter factors such as land quality are taken into account—but even these studies have been challenged. A more dynamic argument on efficient farm size is that small farms have an advantage over large farms in terms of labor supervision and local knowledge, but larger farms gain the advantage as an economy shiſts toward technologically advanced, capital-intensive, and market-oriented agricul- ture (Poulton, Dorward, and Kydd 2010). One of the fundamental models of development eco-
nomics asserts that the development of a dual-sector economy occurs through the transfer of low-productivity agricultural labor to the higher-productivity industrial and service sectors. Te flow of labor continues until the mar- ginal productivity of labor—in other words, income—is equal between the farm and nonfarm sectors, aſter adjusting for labor quality and cost of living. Tis essentially means that workers will move from one sector to the other until wages are equal in the two sectors. Within this framework, farm size is an endogenous variable whose optimal value is the point of equal marginal productivity (again, income). Generally, it is expected that as laborers migrate out of rural areas, operational farm size will increase as those leaving agriculture sell or rent their land to the remaining farmers who can more efficiently expand their operations. Yet, over the past several decades, farm structures in
many developing countries have been affected by gov- ernment policies that distort incentives for, and limit the extent of, efficiency-enhancing land transactions (this is not to deny any justification for equity-oriented redistribu- tive land reforms in certain highly unequal socioeconomic contexts). Such interventions have included the imposi- tion of ceilings on landholding size in a number of Asian countries, such as Bangladesh, India, Pakistan, and the Philippines. Alternatively, many land-abundant develop- ing countries, especially in Africa south of the Sahara, have artificially promoted large-scale, commercial farms. Tese countries include post-independence Nigeria, Sudan, and Tanzania, as well as the Democratic Republic of Congo and
Mozambique, where more recent large land acquisition deals have taken place. Tis artificial promotion of small or large farms through
restrictions on minimum or maximum landownership or rental has been shown to result in inefficiencies by reduc- ing farm productivity. For example, preliminary findings from the Philippines show that imposing a ceiling on farm size results in the misallocation of resources, causing agri- cultural labor productivity to drop by 7 percent and the share of employment in agriculture to increase from 45.1 to 48.5 percent (Adamopoulos and Restuccia 2013). Te same can be seen in India and China, where reduced restric- tions on land rental markets improved agricultural pro- ductivity by transferring land to more efficient (but oſten still poor) producers (Deininger and Jin 2005; Deininger, Jin, and Nagarajan 2008). In fact, evidence from China shows that removing constraints on land rental markets has a much more positive impact on productivity gains and rental market participation than does administratively re- allocating land because the later is weighed down by high transaction costs and imperfect information.
TYPOLOGY OF DEVELOPMENT PATHWAYS FOR SMALLHOLDERS
Given the pivotal and substantial presence of smallhold- ers in many developing countries, policies that directly or indirectly affect smallholder farmers have significant effects on the social and economic trajectory of those countries. However, the appropriate livelihood strategies should not be treated as a single and unique pathway but instead as a dynamic process that reflects the different types of smallholders and economies (Table 1). We have created a typology that reflects the diversity of possible liveli- hood strategies and development pathways for smallholder farmers. Tis typology distinguishes between (1) the profitability of smallholders within the agricultural sector (subsistence farmers without profit potential, subsistence farmers with profit potential, and commercialized small- holder farmers) and (2) the different stages of economic transformation (agriculture-based, transforming, and trans- formed economies). First, smallholders are a diverse set of households and
individuals who face various constraints on their ability to undertake potentially profitable activities in the agricultural sector. Past studies have divided smallholders based on
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