Agricultural Factor Markets in Sub- Saharan Africa: An Updated View with Formal Tests for Market Failure Brian Dillon and Christopher B. Barrett Washington, 15 June 2015 AGRICULTURE IN AFRICA TELLING FACTS FROM MYTHS

Page 2 MOTIVATION Core objectives and findings 1.Provide a summary overview of land and labor market participation in Ethiopia, Malawi, Niger, Tanzania, and Uganda 2.Implement a simple test of market failures in data from five African countries (testing whether the separation hypothesis holds) Main findings: In spite of widespread participation in rural land and labor markets, we strongly reject the null hypothesis of complete and competitive markets in all study countries … both input market participation and failure are widespread.

Page 3 LABOR MARKETS EXIST AND ARE GENERALLY ACTIVE Percent of agricultural households hiring labor CountryActivity Number of households Percent hiring workers EthiopiaCultivation % Harvest % Overall % MalawiNon-harvest % Harvest % Overall % Niger Preparation % Cultivation % Harvest % Overall % TanzaniaPlanting % Weeding % Fertilizing % Harvest % Overall % UgandaOverall %

Page 4 LAND MARKETS EXIST AND ARE ACTIVE TOO Participation in land rental markets EthiopiaMalawiNigerTanzaniaUganda N Household rents land out 6.10%0.90%1.20%3.40%0.40% Household rents land in 19.50%13.10%7.30%6.20%18.10% Household rents or borrows land in 30.30%28.40%27.70%23.20%36.60% Clearly rural SSA markets have sufficient transactors to be competitive. But adequate transactional density is merely a necessary condition for the separation hypothesis to hold.

Page 5 THERE IS CLEAR EVIDENCE OF MARKET FAILURES IN ALL COUNTRIES AND ACROSS MULTIPLE SPECIFICATIONS Tests for market failure But it’s not clear which markets are failing (next step), nor why (search, supervision or transactions costs?). That’s the next phase of research … OLS regression results of farm labor use EthiopiaMalawiNigerTanzaniaUganda Log area (acres)0.489***0.528***0.343***0.444***0.379*** Log median wage ** Log HH size0.379***0.399***0.635***0.399***0.211*** R-squared N

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