How Does Market Access for Smallholders Affect Export Supply? The Case of Tobacco Marketing in Malawi

We measure the impact of a reduction in transaction costs on crop area and production decisions of smallholder tobacco growers in Malawi. For identification we exploit the introduction of an additional tobacco auction floor. Estimations are based on annual data by Extension Planning Area. A 10% reduction in distance to auction floor is shown to increase crop area and production around 4% and 10% respectively. Supply response weakens beyond a distance to auction floor of 60km and runs along the intensive margin: existing tobacco growers improve productivity of cultivation. Impacts are robust for non-random placement of auction floor and several other threats.