the test for joint significance on all household composition variables for the respective category (see the bottom rows of columns 3 and 4) reject the null hypothesis of coefficients on demographic variables jointly being equal to zero for this group. In contrast, these demographic variables are jointly insignificant for the groups with high and medium levels of nonagricultural labor market activity.

# **5. Conclusion and policy implications**

Although cross-country differences in non-agricultural productivity have long attracted interest in the literature (Hsieh and Klenow 2009), differences of equal magnitude exist in agricultural production (Adamopoulos and Restuccia 2014a). In fact, a number of studies have started to explore such differences, pointing toward imperfections in factor markets, especially those for land (Restuccia and SantaeulaliaLlopis 2015) and labor, in addition to policies (Adamopoulos and Restuccia 2014b) as key factors.

We complement this literature by using longitudinal data from India spanning the 1982–2008 period to examine how the inverse relationship between farm size and land productivity evolved over time. The main finding that the relationship weakened significantly but did not disappear even in the last period (2008) can be attributed to two factors. Expanded technological options and real wage growth imply that capital was increasingly substituted for hired labor via mechanization of the production process, reducing the need for family labor-based supervision. However, improved functioning of rural labor markets via greater nonagricultural demand seems to have helped establish the preconditions for separability in the second period, possibly by allowing farmers who had earlier been rationed out to participate in such markets.

Our main finding is that, over the 25 years considered, the inverse farm size–productivity relationship in India weakened in response to better labor market functioning. This not only provides an economically meaningful explanation of an empirically robust phenomenon, but also has implications for policies recommended to address this issue. Where it could be implemented, redistributive land reform has helped increase small farmers’ productivity and investment.<sup>14</sup> But if market imperfections, the nature and severity of which are likely to change over time, have a significant impact, a response that carefully considers historical context and weighs advantages and disadvantages of different options will be needed.<sup>15</sup> Although better labor market functioning can explain the gradual disappearance of the inverse relationship overall, labor productivity still shows considerable divergence across producers. Exploring the extent to

> 14 In India, land reform had positive impacts (Besley and Burgess 2000), though it often did not target the poorest (Besley _et al._ 2016) where it could be implemented (Deininger, Jin and Nagarajan 2009). However, it triggered tenant evictions (Appu 1997), which is consistent with implementation challenges in other contexts (Benjamin _et al._ 2012). In India, with implementation having come to a virtual standstill, mechanisms used (such as prohibition of rentals) remain in place and undermine investment incentives (Deininger, Jin and Yadav _et al._ 2013) and land market functioning (Deininger, Jin and Nagarajan 2008).

> 15 See Keswell and Carter (2014) for a recent study suggesting that, in the context of South Africa, benefits from such reform can still outweigh the considerable costs incurred by such a policy.

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