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Linkages between Farm and Non-Farm Sectors at the Household Level in Rural Ghana A consistent stochastic distance function approach

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Author Info

  • Gustavo Anríquez

    (Agricultural and Development Economics Division, Food and Agriculture Organization)

  • Silvio Daidone

    (Agricultural and Development Economics Division, Food and Agriculture Organization)

Abstract

In the light of an expanding rural non-farm (RNF) sector in developing rural economies, this paper explores the effects of this expansion within the household. Using rural Ghana as a case study this paper explores if the RNF economy allows for economies of diversification within farms; how input demands, agricultural-specific and shared, are transformed by the expansion of this sector; and if this expansion has measurable effects in overall household production efficiency. We first explore the characteristic of the intra-household linkages (technological and welfare driven) between the agricultural and RNF sectors both assuming perfectly working input and output markets, and assuming market failures, in particular missing labor and credit markets. We then try to measure the identified linkages by estimating a household level input distance function. This function is estimated consistently without making log-transformations as has been previously done in the literature. Our empirical analysis suggests that there are high levels of inefficiency in Ghanaian farms. Also, there are cost-complementarities between the RNF sector and the agricultural sector, particularly with food crops in which the poorest tend to specialize. The expansion of the RNF sector increases demand for most inputs including agricultural land. Finally, we show that smaller farms tend to be more efficient, and that RNF output is helping the farm household to become more efficient, but the latter result is not robust.

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Bibliographic Info

Paper provided by Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA) in its series Working Papers with number 08-01.

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Length: 40 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:fao:wpaper:0801

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Related research

Keywords: Rural non-farm sector; input distance function; cost complementarities; technical efficiency; Ghana.;

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References

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  1. Vogel, Stephen J, 1994. "Structural Changes in Agriculture: Production Linkages and Agricultural Demand-Led Industrialization," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 136-56, January.
  2. Maietta, Ornella Wanda, 2002. "The effect of the normalisation of the shadow price vector on the cost function estimation," Economics Letters, Elsevier, vol. 77(3), pages 381-385, November.
  3. Kumbhakar, Subal C. & Karagiannis, Giannis, 2004. "On the equivalence of two normalizations in estimating shadow cost functions," Economics Letters, Elsevier, vol. 82(1), pages 15-19, January.
  4. Atkinson, Scott E. & Primont, Daniel, 2002. "Stochastic estimation of firm technology, inefficiency, and productivity growth using shadow cost and distance functions," Journal of Econometrics, Elsevier, vol. 108(2), pages 203-225, June.
  5. Grosskopf Shawna & Hayes Kathy, 1993. "Local Public Sector Bureaucrats and Their Input Choices," Journal of Urban Economics, Elsevier, vol. 33(2), pages 151-166, March.
  6. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  7. Ian E. Gorman, 1985. "Conditions for Economies of Scope in the Presence of Fixed Costs," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 431-436, Autumn.
  8. Jean-Paul Chavas & Ragan Petrie & Michael Roth, 2005. "Farm Household Production Efficiency: Evidence from The Gambia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 160-179.
  9. Gustavo Anríquez & Silvio Daidone, 2008. "Linkages between Farm and Non-Farm Sectors at the Household Level in Rural Ghana A consistent stochastic distance function approach," Working Papers 08-01, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
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Cited by:
  1. Gustavo Anríquez & Silvio Daidone, 2008. "Linkages between Farm and Non-Farm Sectors at the Household Level in Rural Ghana A consistent stochastic distance function approach," Working Papers 08-01, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).

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