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Does Human Capital Raise Farm or Non-farm Earning More? New Insight from Rural Pakistan Panel Survey

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  • Satriawan, Elan
  • Swinton, Scott M.

Abstract

This study explores how human capital affects farm household earnings using two tools to refine measurement of human capital effects. First, it employs a two-sector model to allow the allocation of family labor between farm and non-farm activities. Second, it accounts for village fixed effects to evaluate whether results from panel data differ meaningfully from a cross-sectional data analysis with local binary variables. The results show that education has a negligible effect on farm earnings; instead, experience appears to be the principal channel by which human capital affects agricultural performance in a traditional rural setting. Our results also suggest that prior models that fail to separate non-farm activities spuriously exaggerated the effect of education to the farm sector. In addition, typical cross-sectional analyses that ignore fixed effects may cause the effects of education on rural household earnings to be significantly overstated. The fact that panel data regressions accounting for village-level fixed effects found only one instance of education raising earnings the effect of literacy on non-farm income suggests that considerable heterogeneity may have been ignored in cross-sectional data analyses, especially ones that omitted village binary variables.

Suggested Citation

  • Satriawan, Elan & Swinton, Scott M., 2005. "Does Human Capital Raise Farm or Non-farm Earning More? New Insight from Rural Pakistan Panel Survey," 2005 Annual meeting, July 24-27, Providence, RI 19207, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea05:19207
    DOI: 10.22004/ag.econ.19207
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    References listed on IDEAS

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    Labor and Human Capital;

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