The impact of sunk costs and path dependencies on nonfarm employment of smallholder rubber farmers: Evidence from Southwest China

The price of natural rubber has remained low since 2011, which has had negative effects on the income of smallholder rubber farmers. However, smallholder rubber farmers are often reluctant to shift from rubber cultivation to nonfarm employment, potentially due to the sunk costs and path dependencies associated with rubber cultivation. Using three-wave panel data from 612 smallholder rubber farmers in the Xishuangbanna Dai Autonomous Prefecture (XSBN) in Yunnan Province, China, this study examines the impact of these sunk costs and path dependencies on smallholder rubber farmers' participation in nonfarm employment. The results show that both sunk costs and path dependencies had significant and negative effects on smallholder rubber farmers' nonfarm employment, and increased path dependencies amplified the inhibitory effect of sunk costs on nonfarm employment. The effects of sunk costs, path dependencies, and their interaction on nonfarm employment were heterogeneous, and more pronounced negative impacts were observed among households exclusively reliant on rubber cultivation, those with limited social networks, and those located in villages with inadequate road infrastructure. This study provides a better understanding of the relatively low nonfarm employment rate of smallholder rubber farmers in the context of persistently low rubber prices. The findings also have significant implications for policy design aimed at facilitating the structural transformation of smallholder rubber farmers and helping them overcome long-term livelihood challenges caused by persistently low rubber prices.