Does neighborhood matter? Spatial proximity and farmers’ technical efficiency

Abstract This article examines the effects of neighborhood on the farmer's technical efficiency (TE) level, adopting a stochastic frontier and spatial Durbin regression models. Our study exploits a three‐wave household‐level panel data from the Ethiopian Rural Socioeconomic Survey (ERSS) collected between 2011 and 2015. We find that farmers have an average TE score of 53%, implying a substantial potential for improvement in the production level. We further find that there is a positive and statistically significant spatial interdependence in TE levels between farms in neighboring communities. Input use, education, and other demographic characteristics are found to have significant positive direct and indirect effects. The findings suggest that policies and programs targeting productivity improvements in agriculture need to consider spatial spillover effects.