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An evaluation of subsidy policy impacts, transient and persistent technical efficiency: A case of Mongolia

Author

Listed:
  • Narangerel Ganbold

    (Northwest A&F University)

  • Shah Fahad

    (Leshan Normal University)

  • Hua Li

    (Northwest A&F University)

  • Tumendemberel Gungaa

    (Mongolian University of Life Sciences)

Abstract

Agricultural sector is the backbone of economy in an developing country. Farm households living in rural areas are particularly small-scale farmers and mainly rely on agriculture. Agriculture sector is the highly supported sector by governmental agencies in Mongolia. Although the subsidy–efficiency relationship has been extensively studied in other country contexts, limited studies have discussed that how farm efficiency and productivity are influenced by subsidies; in all studies subsidies are treated as exogenous. In order to fulfill the research gap, this paper specifically analyzes the subsidy payment effects on technical efficiency (TE) of wheat farmers in Mongolia. An unbalanced farm-level data of central arable region farmers from 2013 to 2018 were utilized in this study. We use a four-component stochastic frontier analysis approach that specifically separates the persistent and transient components, by controlling the heterogeneity. The findings of production frontier results indicate that wheat sown area, seed and labor were the main driving inputs for production growth. The investment in machinery has no impact on the output with insignificant technical changes. The overall estimated mean TE was 60% and mean persistent and transient TE were 0.778 and 0.765 respectively, that implies the possible growth in production without increasing the inputs under current technology. Our results further reveal that cash incentives and soft loans for the purchase of inputs have positive affect on overall TE and its transient components. The farm households technical skills toward efficient use of inputs and farming practices need to be improved. The government should take necessary measures related to technology innovations and disaster risk management and further promote the current subsidy policy, efficiency and technical up-gradation in wheat farming.

Suggested Citation

  • Narangerel Ganbold & Shah Fahad & Hua Li & Tumendemberel Gungaa, 2022. "An evaluation of subsidy policy impacts, transient and persistent technical efficiency: A case of Mongolia," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(7), pages 9223-9242, July.
    • Handle: RePEc:spr:endesu:v:24:y:2022:i:7:d:10.1007_s10668-021-01821-2
    DOI: 10.1007/s10668-021-01821-2
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