One size does not fit all: an empirical investigation of the Romanian agriculture production function

There are issues when researchers want to consider homogeneous, with regard to some functional relationship, groups. For example, in representative farm modelling analysts are interested in specifying groups of farms that have the same input/output relationship. This paper proposes to use the underlying functional relationship to derive such groupings. The paper employs finite regression mixture models to specify and estimate farm groups with regard to pre-specified functional relationship. The proposed approach is illustrated with regard to the aggregate production function of Romanian agriculture. The results point out to two farm clusters. The first one is more productive with a better use of capital and intermediate consumption. The second one makes a better use of land and labour. The calculated Shannon index shows that the second cluster is characterised by a higher level of land use diversity. The implications of the derived structure are discussed in light of two sets of policy – a production oriented and environment oriented one.