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Does human capital raise farm or nonfarm earning more? New insight from a rural Pakistan household panel


  • Elan Satriawan
  • Scott M. Swinton


This study explores how human capital affects farm household earnings using two tools to refine measurement of human capital effects. First, it employs a two-sector model to allow the allocation of family labor between farm and nonfarm activities. Second, it accounts for village fixed effects to evaluate whether results from panel data differ meaningfully from a cross-sectional data analysis with local binary variables. The results show that education has a negligible effect on farm earnings; instead, experience appears to be the principal channel by which human capital affects agricultural performance in a traditional rural setting. Our results also suggest that prior models that fail to separate nonfarm activities spuriously exaggerated the effect of education to the farm sector. In addition, typical cross-sectional analyses that ignore fixed effects may cause the effects of education on rural household earnings to be significantly overstated. The fact that panel data regressions accounting for village-level fixed effects found only one instance of education raising earnings-the effect of literacy on nonfarm income-suggests that considerable heterogeneity may have been ignored in cross-sectional data analyses, especially ones that omitted village-level effects. Copyright 2007 International Association of Agricultural Economists.

Suggested Citation

  • Elan Satriawan & Scott M. Swinton, 2007. "Does human capital raise farm or nonfarm earning more? New insight from a rural Pakistan household panel," Agricultural Economics, International Association of Agricultural Economists, vol. 36(3), pages 421-428, May.
  • Handle: RePEc:bla:agecon:v:36:y:2007:i:3:p:421-428

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    Cited by:

    1. Hanjra, Munir A. & Ferede, Tadele & Gutta, Debel Gemechu, 2009. "Reducing poverty in sub-Saharan Africa through investments in water and other priorities," Agricultural Water Management, Elsevier, vol. 96(7), pages 1062-1070, July.
    2. Babatunde, Raphael O., 2013. "On-Farm and Off-farm Works: Complement or Substitute? Evidence from Rural Nigeria," 2013 AAAE Fourth International Conference, September 22-25, 2013, Hammamet, Tunisia 160437, African Association of Agricultural Economists (AAAE).
    3. repec:spr:agfoec:v:6:y:2018:i:1:d:10.1186_s40100-018-0098-0 is not listed on IDEAS
    4. Zhang, Wan-Shou & Li, Feng-Min & Xiong, You-Cai & Xia, Qing, 2012. "Econometric analysis of the determinants of adoption of raising sheep in folds by farmers in the semiarid Loess Plateau of China," Ecological Economics, Elsevier, vol. 74(C), pages 145-152.

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