Does informatization reduce factor misallocation in grain production?

Reducing factor misallocation is important for improving total factor productivity in grain production. This paper augments a Cobb–Douglas production function with a parameter capturing farmers’ cultivation ability, distinguishes between relative and absolute factor distortions, and develops a framework for measuring factor misallocation and examining the role of informatization. Using agricultural cost-benefit data from the National Development and Reform Commission (NDRC) of China for 2004–2022, we estimate the effect of informatization on factor misallocation in grain production. The results indicate that factor misallocation in China’s grain production declined over the sample period, although substantial scope for further improvement remains. Informatization significantly reduces factor misallocation, with evidence of a lagged effect. The effect operates primarily through a narrowing of the wage gap and an expansion in average farm size, and is stronger in areas with less favorable geographic conditions and in counties with younger farm populations. These findings suggest that further advances in agricultural informatization, combined with deeper market-oriented reforms of factor markets, can improve allocative efficiency and release additional grain-production potential.