Non-farm employment and agricultural mechanisation adoption: A reciprocal relationship

This study investigates the reciprocal relationship between non-farm employment and mechanisation adoption of smallholders in Vietnam using the longitudinal Vietnam Access to Resources Household Survey (VARHS) 2008-2016 dataset. By employing the correlated random effects with the Mundlak approach to address the selection bias from the unobserved heterogeneity of panel data and the instrumental variables regressions to treat the endogeneity issue of non-farm participation and mechanisation adoption, the findings revealed that non-farm employment and mechanisation adoption have a positive interactive relationship. The mechanisation adoption in agricultural production could save farm labour and allow farmers to engage in non-farm activities. Conversely, non-farm earnings could relax financial constraints and provide opportunities for farmers to invest in mechanisation. The agricultural labour shifting to non-farm work was replaced by hiring machinery services rather than machinery investment when the service market was available and cost-effective. Our study implies practical policies and actionable plans to encourage nonfarm employment and facilitate agricultural mechanisation toward sustainable agriculture and inclusive development in rural communities.