Isolation and agricultural productivity David Stifel (Lafayette College) * Bart Minten (IFPRI) Abstract: This paper examines the mechanisms that transmit isolation into poverty. In particular, we study the effect of isolation and transport infrastructure on welfare and agricultural productivity in the case of Madagascar. Madagascar is a good case study given the bad shape of its infrastructure and therefore the significant variation in isolation. Based on comprehensive household survey data combined with a census of communes, we discover a strong poverty-isolation relationship. Further we find the inverse relationship between agricultural productivity and isolation to be surprisingly strong. We isolate the following reasons why productivity might decline with isolation: (a) transportation-induced transaction costs, (b) the inverse relationship between plot-size and productivity, (c) increasing price variability and extensification onto less fertile land, and (d) insecurity. December 2007 * The authors express their gratitude to USAID for providing financial support for this research, to the Institut National de la Statistique (INSTAT) in Madagascar for graciously providing the household survey data, and to Paul Dorosh for making this work possible and for insightful comments. They also want to thank three anonymous referees, Chris Barrett, Dan Gilligan, Jean-Claude Randrianarisoa, John Strauss and participants at seminars held at Cornell University, IFPRI, SUNY Binghamton and the World Bank for valuable comments on an earlier version of this paper, and Lalaina Randrianarison for assistance creating the maps.