How do Farm Households Cope with Aggregate Shocks? Evidence from the Great Depression in Prewar Japan

This paper employs panel data for farm households from prewar Japan to examine how they coped with shortfalls in farm income and farm assets after the Great Depression, which encompasses the financial crisis of 1930. The depression caused two significant shocks in rural Japan: (i) a decrease in farm income due to a rapid decrease in the prices of farm products (farm income shock); and (ii) a decrease in farm assets (farm asset shock). We examined the coping strategies, which included changes in non-farm labor supply, farmland use, hired labor demand, and input use. Although the Great Depression greatly impacted farm households in Japan, so far few studies have quantitatively made an economic evaluation of its impacts, especially by econometric analysis. We used panel data for farm households during the Great Depression in prewar Japan to investigate whether covariate shocks induced by the depression affected farmland use, the non-farm labor supply, hired labor demand, and the input use of farm households. Estimation results show that farm households maintained the amount of arable land, increased the non-farm labor supply, and decreased the use of fertilizer to cope with farm income shock and farm asset shock. This indicates that the aggregate shocks from the Great Depression led to the stagnation of agricultural growth in Japan. We also found that small or medium landlords expanded the amount of arable land. This implicitly supports the results of previous studies asserting that small or medium landlords claimed restored tenanted land from peasants after the Great Depression.