| This dissertation examines the performance of Ecuador's agricultural sector during the 1970s and the early 1980s. Over this period, the country's economy experienced an important transformation due to abundant oil export revenues. The main objectives of economic policy were to achieve rapid industrialization by import substitution, while at the same time conducting an agrarian reform program and making large resource transfers to agriculture to enhance its performance.;Through historical analysis, we show that the process of land reform induced both the market integration of agriculture and a change in behavior towards profit maximization. To test the hypothesis of modernization, we estimated a profit function by region and farm size. We found that farmers follow a profit maximization behavior and operate with constant returns to scale, irrespective of their geographical location and farm size. We also found that similar technologies are used across farm sizes.;In spite of these results, we observed that yields are lower on smaller farms. Since farms were found to operate efficiently, with no economies of scale, and with similar technologies, explanation of these differences was linked to the fact that different farmers face different prices for output and for inputs. These strong differential transaction costs originate in the political economy of institutional rents and are detrimental to small farms. This suggests that a successful redistributive land reform should be complemented by an institutional reform that equalizes access to institutional rents across farms.;In spite of these policies towards agriculture, the performance of the sector was poor. This unsatisfactory performance gave rise to a controversy over whether agriculture had modernized but faced inadequate incentives, or the agrarian reform had caused stagnation, as peasant farmers did not respond to incentives due to lack of entrepreneurial capacity. We define modernization as the full integration of agriculture to the rest of the economy, with the consequent behavioral changes which the observance of market rules for decision making at the farm level imply. |
