Land-Ownership, Working Capital and Agricultural Output: Egypt 1913-58

Abstract

A simple model is constructed in which short-term credit is needed to finance the purchase of inputs, in which there is bankruptcy risk, and in which land is the preferred means of saving of the small land-owner. These imperfections, which I argue were important characteristics of Egyptian agriculture during the first half of this century, result in aggregate agricultural output being dependent on the distribution of land-ownership. I study the effect on aggregate agricultural output of changes in the distribution of land-ownership by using Rothschild-Stiglitz s mean-preserving spreads. The main theoretical insight is that aggregate agricultural output will be increased by a decrease in the inequality of the distribution of land-ownership when returns to scale are decreasing. The results are extended to two concepts of Lorenz domination. Testable short- and long-run empirical propositions are formulated and carefully tested on Egyptian data for the period 1913–58. I find that, controlling for factor inputs, there is no trade-off between equity and efficiency for Egyptian agriculture—they go hand in hand in the short-run.