May 31, 2018 - Research Publication

Trading Frictions in Indian Village Economies

Journal of Development Economics

Emerick, Kyle (2018) “Trading Frictions in Indian Village Economies.” Journal of Development Economics, Volume 132, 2018, Pages 32-56. https://doi.org/10.1016/j.jdeveco.2017.12.010

Abstract: This paper presents evidence of trading frictions in rural Indian villages. I first introduced a new seed variety to a random subset of farmers in 82 villages. I then allowed the new variety to diffuse through farmer-to-farmer trading in a random half of villages. This mode of exchange is compared with demand that was approximated by selling the same seeds directly to farmers in the other half of villages. I find that direct trading between farmers leads to substantial under-adoption when compared to door-to-door sales — suggesting that trading frictions exist and represent a barrier to technological diffusion. Caste identity explains some, but not all, of this puzzle. Specifically, farmers sharing the same surname or belonging to the same subcaste as the original seed recipients adopt at higher rates when farmers trade amongst themselves. Overall, the trading frictions in farmer-to-farmer exchange are severe enough to make door-to-door sales cost effective.

JDE Highlights:

  • Trading frictions prevent Indian farmers from efficiently allocating inputs.
  • Adoption increases substantially when a new seed is sold with door-to-door sales.
  • Caste identity explains a portion of this adoption gap.
  • The gains from eliminating trading frictions outweigh the cost by over five times.