IMF Report: Agricultural Distortions Drive Out Productive Workers and Reduce Welfare
SDG 8: Decent Work and Economic Growth | SDG 10: Reduced Inequalities | SDG 2: Zero Hunger
Institutions: Ministry of Agriculture and Farmers’ Welfare | Ministry of Rural Development | NITI Aayog
The IMF Working Paper Agricultural Distortions and International Migration, built on a rigorous theoretical framework and detailed microdata from Guatemala, identifies agricultural distortions as a primary structural driver (push factor) of international migration and a major barrier to productivity.
These distortions—arising from inefficient regulations, transaction costs, and land market segmentations in the country’s highly informal agricultural sector—significantly reduce aggregate output and household welfare. The study moves beyond simple correlation by estimating the causal effects operating through two distinct channels:
Migration Channel (Negative Selection): Distortions disrupt the alignment between individual ability and optimal job choice, leading to the emigration of more productive agents. This worsens the quality of the remaining domestic workforce, reducing overall aggregate productivity.
Productivity Channel (Income Loss): Distortions cause severe factor misallocation (inefficient use of land and labor), which depresses incomes across both rural and urban sectors. This general decline in domestic incomes increases the overall incentive for cross-border migration.
Simulations quantify the substantial national gains from structural reform: reducing these distortions to the most efficient regional benchmark would decrease the share of emigrants by 2.3 percentage points (equivalent to a 35.5 percent reduction in the Guatemalan population currently residing in the US), increase aggregate agricultural productivity by 30.1 percent, and raise median household welfare by 4.5 percent.
Policy Relevance: Institutional and Equitable Gains
The study’s sub-national analysis reveals that high-distortion regions are typically those that are more isolated, exhibit limited financial penetration, and have weaker government presence. This strongly suggests that policy interventions should focus on tackling these institutional inefficiencies and improving land markets. The welfare gains from reducing distortions are proven to be distributionally progressive, with the largest percentage benefits accruing to lower-income groups. Therefore, addressing distortions is a highly effective strategy for not only stemming migration pressures and promoting sustainable rural development, but also for advancing equity.
What is the ‘Migration Channel’ of Distortions? → The migration channel describes how agricultural distortions alter the selection of emigrants based on productivity. Since distortions disproportionately affect high-ability farmers (by restricting their profit potential), these more productive individuals are induced to leave the country. This reallocation of skilled labor abroad represents a loss of human capital and an additional layer of productivity drag beyond misallocation alone.
Follow the full paper here: Agricultural Distortions and International Migration