Contributions of Agricultural R&D to Farm Income by Farm Household Types

This study investigates the impacts of agricultural R&D on farm income in Korea. We constructed a decomposition method where farm income change was decomposed into the four effects of output price change, input price change, productivity change and production scale change. Before the decomposition method was applied, the impacts of the R&D expenditure on the changes in output prices, input prices, total factor productivity, and factor-bias were econometrically estimated. We found that the agricultural R&D expenditure negatively affected farm income by reducing agricultural product prices substantially. On the other hand, the agricultural R&D expenditure resulted in a saving in cost by reducing input prices and enhancing productivity. An increase in production scale owing to the R&D expenditure also contributed to farm income slightly. The sum of the positive effects of input price decline, productivity change, and scale change of the agricultural R&D dominated the negative effect of output price decline. Finally, it was found that the R&D effects are substantially variant across farm households depending on their choice of products, input shares, farmland size, and production location.