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Effect of off-farm income on smallholder commercialization: panel evidence from rural households in Ethiopia

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  • Tesfaye Woldeyohanes
  • Thomas Heckelei
  • Yves Surry

Abstract

This paper investigates how off-farm income affects crop output market participation decision and marketed surplus of smallholder farmers in Ethiopia. A double-hurdle model is estimated using three waves of panel data from Ethiopian Rural Household Survey (ERHS). The article controls for unobserved heterogeneity using correlated random effect procedure and potential endogeneity of off-farm income using a control function approach. Results show that off-farm income has no significant influence on household output market participation. But conditional on positive market participation, each additional earning from off-farm work has negative and statistically significant effect on marketed surplus. This indicates farmers use earnings from off-farm source rather for consumption purpose than as a source of liquidity to invest in agricultural production and increase marketable surplus. Our result has policy implications that expanding higher earning rural enterprises through capacity building and human capital investment is vital. This could improve the returns to labor for off-farm work participating land-poor households in the process of smallholder agricultural commercialization.
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  • Tesfaye Woldeyohanes & Thomas Heckelei & Yves Surry, 2017. "Effect of off-farm income on smallholder commercialization: panel evidence from rural households in Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 48(2), pages 207-218, March.
    • Handle: RePEc:bla:agecon:v:48:y:2017:i:2:p:207-218
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    10. Varun Kumar Das & A. Ganesh-Kumar, 2019. "Off-the-farm livelihood choice of farm households in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-032, Indira Gandhi Institute of Development Research, Mumbai, India.
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