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How does Market Access affect Smallholder Behavior? The Case of Tobacco Marketing in Malawi

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  • Wouter Zant

    (VU University Amsterdam)

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    Abstract

    Transaction costs play a key role in the behaviour of smallholders in developing countries. We exploit the quasi experimental design of the introduction of an additional tobacco auction floor in Malawi in order to investigate the impact of a reduction in transaction costs and improved market access on yield and underlying smallholder's decisions on production and area of tobacco, the major cash crop in Malawi. Estimations are based on annual data by Extension Planning Area, 198 in total, fully covering Malawi, for 2003-04 to 2009-10. The estimation results support a statistically significant positive impact of the introduction of a new auction floor on tobacco yield and production of smallholders. Yield increases over the years to 21-25% above base year level. Smallholder production increases are of a similar size with a larger variation, ranging from 12% to 30%. The evidence further suggests that smallholder area is not affected. Results are shown to be robust after controlling for rainfall, fertilizer use, tobacco prices, maize prices and after including the lagged dependent variable.

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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-088/V.

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    Date of creation: 03 Sep 2012
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    Handle: RePEc:dgr:uvatin:20120088

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    Web page: http://www.tinbergen.nl

    Related research

    Keywords: transaction costs; market access; subsistence; food & cash crops; Malawi; Africa;

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    1. Goyal, Aparajita, 2010. "Information, direct access to farmers, andrural market performance in central India," Policy Research Working Paper Series 5315, The World Bank.
    2. Renkow, Mitch & Hallstrom, Daniel G. & Karanja, Daniel D., 2004. "Rural infrastructure, transactions costs and market participation in Kenya," Journal of Development Economics, Elsevier, vol. 73(1), pages 349-367, February.
    3. Nigel Key & Elisabeth Sadoulet & Alain De Janvry, 2000. "Transactions Costs and Agricultural Household Supply Response," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 245-259.
    4. Marcel Fafchamps & Ruth Vargas Hill, 2004. "Selling at the farm-gate or travelling to market," CSAE Working Paper Series 2004-30, Centre for the Study of African Economies, University of Oxford.
    5. Fafchamps, Marcel & Gabre-Madhin, Eleni & Minten, Bart, 2005. "Increasing returns and market efficiency in agricultural trade," Journal of Development Economics, Elsevier, vol. 78(2), pages 406-442, December.
    6. Negri, Mariano & Porto, Guido, 2007. "Burley Tobacco Clubs in Malawi: Nonmarket Institutions for Exports," MPRA Paper 6210, University Library of Munich, Germany.
    7. Steven Were Omamo, 1998. "Transport Costs and Smallholder Cropping Choices: An Application to Siaya District, Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 116-123.
    8. Minten, Bart & Kyle, Steven, 1999. "The effect of distance and road quality on food collection, marketing margins, and traders' wages: evidence from the former Zaire," Journal of Development Economics, Elsevier, vol. 60(2), pages 467-495, December.
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