Does agricultural outsourcing improve technical efficiency? Evidence from farms of various scales in China

Outsourcing plays an increasingly crucial role in improving the technical efficiency of China's agricultural production sector. This study employs a single-step stochastic frontier analysis model to investigate the impact of agricultural outsourcing on technical efficiency and how this impact varies across different farm scales. Our findings reveal a U-shaped relationship between farm technical efficiency and agricultural outsourcing. As larger farms demonstrating a higher engagement in outsourcing activities, our analysis demonstrates that outsourcing contributes to increased technical efficiency for small- and large-scale farms, while it has a negative impact on technical efficiency for medium-scale farms. This variation is attributed to the diverse benefits of labor division and economies of scale, as well as the differing transaction costs associated with outsourcing. These results remain robust after addressing the endogeneity issue. The heterogeneity analyses across various production stages and types of production outsourcing services underscores the crucial role of specialization, economies of scale, and transaction costs in shaping the relationship between technical efficiency, outsourcing and farm scale.