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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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Suggested Citation

  • 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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    File URL: http://hdl.handle.net/10.1111/agec.2017.48.issue-2
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    1. Abdallah, Abdul-Hanan & Abdul-Rahaman, Awal & Issahaku, Gazali, 2021. "Production and hidden hunger impacts of sustainable agricultural practices: evidence from rural households in Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 59(4), January.
    2. Sansi Yang & Le Yu & Ganxiao Leng & Huanguang Qiu, 2021. "Livestock farmers’ perception and adaptation to climate change: panel evidence from pastoral areas in China," Climatic Change, Springer, vol. 164(1), pages 1-24, January.
    3. Sellare, Jorge & Meemken, Eva-Marie & Qaim, Matin, 2020. "Fairtrade, Agrochemical Input Use, and Effects on Human Health and the Environment," Ecological Economics, Elsevier, vol. 176(C).
    4. Daniel Adu Ankrah & Bright Owusu Asante & Stephen Prah & Forster K. Boateng, 2024. "Impact of digital financial inclusion on the participation in farmer‐based organisations, structured market and off‐farm work in Ghana," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(2), pages 1254-1273, March.
    5. 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.
    6. Varun Kumar Das, 2018. "Looking Beyond the Farm and Household: Determinants of On-farm Diversification in India," Working Papers id:12945, eSocialSciences.
    7. Opondo, F. & Owuor, G., 2018. "The Effect of Cassava Commercialization On Household Income of Smallholder Farmers in Arid and Semi-arid Land (Asal), A Case of Kilifi County, Kenya," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276040, International Association of Agricultural Economists.
    8. Oliver Schulte & Trung Thanh Nguyen & Ulrike Grote, 2022. "The Effect of Renting in Cropland on Livelihood Choices and Agricultural Commercialization: A Case Study from Rural Vietnam," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(6), pages 2878-2898, December.
    9. Ma, Xiaowei & Li, Chuandong & Kang, Qi & Chen, Danni & Sun, Qingyu, 2024. "Rural household nonagricultural income and energy transition: Evidence from central China," Energy Policy, Elsevier, vol. 188(C).
    10. Varun Kumar Das, 2018. "Looking beyond the farm and household: Determinants of on-farm diversification in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2018-023, Indira Gandhi Institute of Development Research, Mumbai, India.
    11. Zhang, Jian & Mishra, Ashok K. & Zheng, Linyi, 2025. "China's new agricultural subsidy and land rental market development: The dual perspective of efficiency and equity," China Economic Review, Elsevier, vol. 92(C).
    12. Ranjula Bali Swain & Aimable Nsabimana, 2023. "Financial inclusion and nutrition among rural households in Rwanda," WIDER Working Paper Series wp-2023-141, World Institute for Development Economic Research (UNU-WIDER).
    13. Ma, Wanglin & Zhou, Xiaoshi & Renwick, Alan, 2019. "Impact of off-farm income on household energy expenditures in China: Implications for rural energy transition," Energy Policy, Elsevier, vol. 127(C), pages 248-258.
    14. Martin Paul & Kai Mausch & Tesfaye B Woldeyohanes & Thomas Heckelei, 2022. "Three hurdles towards commercialisation: integrating subsistence chickpea producers in the market economy," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 49(3), pages 668-695.
    15. Phiri, Isaac, 2020. "The effect of access to finance on commercialisation of smallholder maize farmers in Eswatini," Research Theses 334755, Collaborative Masters Program in Agricultural and Applied Economics.
    16. Weatherspoon Dave D. & Miller Steven R. & Niyitanga Fidele & Weatherspoon Lorraine J. & Oehmke James F., 2021. "Rwanda’s Commercialization of Smallholder Agriculture: Implications for Rural Food Production and Household Food Choices," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 19(1), pages 51-62, May.

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