In 2011, a special economic zone project of Reliance, a major conglomerate in India, had been stalled for over five years due to difficulties in assembling a contiguous land parcel. In fact, a third of firms across low- and middle-income countries report access to land as a moderate to severe constraint on their operations (World Bank Enterprise Surveys). One source of this constraint is the small and declining size of farms in these countries. Small holdings require firms to negotiate with multiple landowners to assemble a site, increasing bargaining costs and holdout risks (Eckart, 1985; Sood, 2022).
My job market paper examines how agricultural land fragmentation, an understudied barrier to manufacturing expansion, affects local economies. In the context of India, I find that agricultural land fragmentation reduces manufacturing activity and shifts employment from manufacturing to agriculture, slowing structural change. But what does this imply for local welfare? The answer is not straightforward.
While smaller holdings make it more costly for firms to assemble land, they also shape returns from farming (Foster and Rosenzweig, 2022). Smaller, family-run farms may generate higher profits per acre due to lower hiring and supervision costs. My model shows that districts where farm sizes decline more experience larger gains in total real income, as higher agricultural returns offset the costs to manufacturing. These gains, however, have uneven effects: workers lose from larger wage declines, while landowners benefit from larger rent gains. Easing firms’ access to land, for instance through simpler land conversion procedures, can substantially mitigate the costs to workers even when agricultural holdings remain small.
The Indian Context
Agricultural land fragmentation is severe in India: the average farm size has nearly halved between 1970 and 2010, falling from 5.6 to 2.8 acres. Land redistribution policies, succession laws that divide an individual’s land among all heirs, and rising population, have all contributed to this steady decline. Land consolidation has remained limited due to social norms attached to landownership and poor land records.
