Rural factor markets in Pakistan
Four important and inter-related issues in the economics of agriculture in developing countries are production efficiency, tenancy, technological innovation and rural-urban migration. These issues are examined in this study by analysing the working of rural factor markets using empirical evidence on selected farmers in four villages and an important sub-division in Pakistans Punjab province. The pattern of land holding in Pakistan suggests that land is very unequally distributed. This observation is the basis for may proposals of land reform. It has been argued that inequality in land distribution is undesirable per se as well as because it leads to inefficiency in agricultural production. Empirical evidence from the villages suggests that an inverse relationship exists between farm size and productivity thus lending support to the second part of the argument. Explanations in terms of the working of rural land and labour markets are offered for the existence of the relationship. Tenancy is important in Pakistan. Its existence is explained in terms of adjustments in factor endowments by landowners and landless cultivators given that markets for labour and draught power operate imperfectly. Different tenurial contracts imply different sets of incentives that influence decisions regarding resource allocation on the farm. The empirical evidence suggests that adjustments are made - such as devising cost-sharing, input stipulation and supervision arrangements - to ensure that different tenurial contracts are equally efficient. It is argued that despite the apparent difficulties of access to 'green revolution' technology inputs due to imperfections in their distribution and scarcity of rural credit, small farms use inputs such as high yield variety seeds and chemical fertilizers no less intensively compared to the large farmers. The evidence suggests that new markets for factor services and intricate but more accessible networks of fertilizer and seed distribution may have developed to facilitate the use by small farmers. The relationship between migration and rural credit markets is examined. It is argued that migration may improve the credit ratings of households and thus may facilitate borrowing in the rural credit market. Detailed comments are also made on the role of other rural-end variables such as non-farm income, mechanization, output per capita, education and available land per capita in influencing the decision to migrate. The underlying theme of the study is the analysis of operations in rural factor markets. We analyse, carefully, interactions in these markets and then examine some important aspects of policies in the light of our analysis of the four issues.