The role of market imperfections in shaping rural household livelihoods: evidence from South Africa

This thesis analyses farm household behaviour and livelihood strategies in the presence of market imperfections. The first chapter uses a farm household model to explain the presence of three household groups determined on the basis of the labour regime adopted: small-scale peasants, self-cultivators and hiring-in households. A partial generalised ordered logit model is used to test the main predictions of the model using data from the 1997 Rural Survey. The results show that access to liquidity and market imperfections matter in the choice of the labour strategy and that liquidity constrained households are more likely to sell labour off-farm. The second chapter provides an analysis of household technical effciency (TE) using using data on the KwaZulu Natal Province. The analysis is conducted at household-level and off-farm activities are considered as additional outputs of production. This approach better captures the jointness between farm and non-farm activities generated by the presence of market imperfections. An important source of liquidity for the household is the receipt of a pension. Its effect on household TE is identified exploiting the age eligibility criteria adopted by the pension program. The results show that access to liquidity and income diversification has positive effects on household TE. Finally the last chapter investigates the relationship between land and household welfare. It uses the year of arrival in the current location as an instrument for land access and size for households in the former homelands. This identification strategy relies on the argument that African households have been forcibly relocated to the homelands since the introduction of the Native Land Act in 1913. Because of increasing population pressure in the homelands, later arrivals were less likely to have access to land and to larger plots of land. Results show that access to land positively affects the welfare of rural household.