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Abstract
We analyse the growth of family farms in Israeli cooperative villages during a period
of economic turmoil. We use instrumental variables to account for the endogeneity of
initial farm size, and correct for selectivity as a result of farm survival. We also include
a technical efficiency index, derived from the estimation of a stochastic frontier production
model, as an explanatory variable. Our aim is to check whether ignoring efficiency
could have been the reason for convergence results obtained elsewhere in the
literature. We found that technical efficiency is an important determinant of farm
growth, and that not controlling for technical efficiency could seriously bias the
results. In particular, larger farms are found to grow faster over time, while without
controlling for technical efficiency the farm growth process seemed to be independent
of initial farm size. The increasing polarisation of farm sizes in Israel has ramifications
for the inefficiencies induced by the historical quota system, for the political power of
the farm sector and for the social stability of farm communities.