IDEAS home Printed from https://ideas.repec.org/p/ags/iaae15/211895.html
   My bibliography  Save this paper

Effect of Off-farm Income on Smallholder Commercialization: Panel Evidence from Rural Households in Ethiopia

Author

Listed:
  • Woldeyohanes, Tesfaye Berhanu
  • Heckelei, Thomas
  • Surry, Yves

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.

Suggested Citation

  • Woldeyohanes, Tesfaye Berhanu & Heckelei, Thomas & Surry, Yves, "undated". "Effect of Off-farm Income on Smallholder Commercialization: Panel Evidence from Rural Households in Ethiopia," 2015 Conference, August 9-14, 2015, Milan, Italy 211895, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae15:211895
    DOI: 10.22004/ag.econ.211895
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/211895/files/Woldeyohanes-Effect%20of%20off-farm%20income%20on%20smallholder%20commercialization-65.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.211895?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nigel Key & Elisabeth Sadoulet & Alain De Janvry, 2000. "Transactions Costs and Agricultural Household Supply Response," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 245-259.
    2. de Janvry, Alain & Fafchamps, M. & Sadoulet, Elisabeth, 1991. "Peasant Household Behavior with Missing Markets: Some Paradoxes Explain," CUDARE Working Papers 198579, University of California, Berkeley, Department of Agricultural and Resource Economics.
    3. Thomas Reardon & Eric Crawford & Valerie Kelly, 1994. "Links Between Nonfarm Income and Farm Investment in African Households: Adding the Capital Market Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(5), pages 1172-1176.
    4. Barrett, Christopher B., 2008. "Smallholder market participation: Concepts and evidence from eastern and southern Africa," Food Policy, Elsevier, vol. 33(4), pages 299-317, August.
    5. von Braun, Joachim, 1995. "Agricultural commercialization: impacts on income and nutrition and implications for policy," Food Policy, Elsevier, vol. 20(3), pages 187-202, June.
    6. van den Berg, Marrit & Kumbi, Girma Earo, 2006. "Poverty and the Rural Non-Farm Economy in Oromia, Ethiopia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25689, International Association of Agricultural Economists.
    7. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318, Elsevier.
    8. Vella, Francis, 1993. "A Simple Estimator for Simultaneous Models with Censored Endogenous Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 441-457, May.
    9. Singh, Inderjit & Squire, Lyn & Strauss, John, 1986. "A Survey of Agricultural Household Models: Recent Findings and Policy Implications," The World Bank Economic Review, World Bank, vol. 1(1), pages 149-179, September.
    10. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    11. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    12. Papke, Leslie E. & Wooldridge, Jeffrey M., 2008. "Panel data methods for fractional response variables with an application to test pass rates," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 121-133, July.
    13. Marc F. Bellemare & Christopher B. Barrett, 2006. "An Ordered Tobit Model of Market Participation: Evidence from Kenya and Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 324-337.
    14. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-685, May.
    15. Hernandez, Ricardo & Reardon, Thomas & Guan, Zhengfei, 2010. "Rural Nonfarm Employment and Agricultural Modernization and Diversification in Guatemala," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61686, Agricultural and Applied Economics Association.
    16. C. Peter Timmer, 1997. "Farmers and Markets: The Political Economy of New Paradigms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 621-627.
    17. Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-844, September.
    18. Binswanger, Hans P & von Braun, Joachim, 1991. "Technological Change and Commercialization in Agriculture: The Effect on the Poor," The World Bank Research Observer, World Bank, vol. 6(1), pages 57-80, January.
    19. Iddo Kan & Ayal Kimhi & Zvi Lerman, 2006. "Farm output, non-farm income and commercialization in rural Georgia," The Electronic Journal of Agricultural and Development Economics, Food and Agriculture Organization of the United Nations, vol. 3(2), pages 276-286.
    20. Holden, Stein & Shiferaw, Bekele & Pender, John, 2004. "Non-farm income, household welfare, and sustainable land management in a less-favoured area in the Ethiopian highlands," Food Policy, Elsevier, vol. 29(4), pages 369-392, August.
    21. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    22. Barrett, C. B. & Reardon, T. & Webb, P., 2001. "Nonfarm income diversification and household livelihood strategies in rural Africa: concepts, dynamics, and policy implications," Food Policy, Elsevier, vol. 26(4), pages 315-331, August.
    23. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    24. Gbemisola Oseni & Paul Winters, 2009. "Rural nonfarm activities and agricultural crop production in Nigeria," Agricultural Economics, International Association of Agricultural Economists, vol. 40(2), pages 189-201, March.
    25. Alene, Arega D. & Manyong, V.M. & Omanya, G. & Mignouna, H.D. & Bokanga, M. & Odhiambo, G., 2008. "Smallholder market participation under transactions costs: Maize supply and fertilizer demand in Kenya," Food Policy, Elsevier, vol. 33(4), pages 318-328, August.
    26. Alain Janvry & Elisabeth Sadoulet, 2006. "Progress in the Modeling of Rural Households’ Behavior under Market Failures," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Alain Janvry & Ravi Kanbur (ed.), Poverty, Inequality and Development, chapter 0, pages 155-181, Springer.
    27. de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-1417, November.
    28. Pingali, Prabhu L. & Rosegrant, Mark W., 1995. "Agricultural commercialization and diversification: processes and policies," Food Policy, Elsevier, vol. 20(3), pages 171-185, June.
    29. Alain Janvry & Ravi Kanbur (ed.), 2006. "Poverty, Inequality and Development," Economic Studies in Inequality, Social Exclusion, and Well-Being, Springer, number 978-0-387-29748-4, Fall.
    30. Prabhu L. Pingali, 1997. "From Subsistence to Commercial Production Systems: The Transformation of Asian Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 628-634.
    31. William J. Burke, 2009. "Fitting and interpreting Cragg's tobit alternative using Stata," Stata Journal, StataCorp LP, vol. 9(4), pages 584-592, December.
    32. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
    33. Stephan J. Goetz, 1992. "A Selectivity Model of Household Food Marketing Behavior in Sub-Saharan Africa," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(2), pages 444-452.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Weatherspoon Dave D. & Miller Steven R. & Weatherspoon Lorraine J. & Niyitanga Fidele & 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.
    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. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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).
    9. 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.
    10. Varun Kumar Das, 2018. "Looking Beyond the Farm and Household: Determinants of On-farm Diversification in India," Working Papers id:12945, eSocialSciences.
    11. 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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Melkani, Aakanksha & Mason, Nicole & Mather, David & Chisanga, Brian & Jayne, Thom, 2021. "Smallholder Market Participation and Choice of Marketing Channel in the Presence of Liquidity Constraints: Evidence from Zambian Maize Markets," 2021 Conference, August 17-31, 2021, Virtual 315273, International Association of Agricultural Economists.
    2. Mather, David & Boughton, Duncan & Jayne, Thomas S., 2011. "Smallholder Heterogeneity and Maize Market Participation in Southern and Eastern Africa: Implications for Investment Strategies to Increase Marketed Food Staple Supply," Food Security International Development Working Papers 118473, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    3. Olwande, John & Smale, Melinda & Mathenge, Mary K. & Place, Frank & Mithöfer, Dagmar, 2015. "Agricultural marketing by smallholders in Kenya: A comparison of maize, kale and dairy," Food Policy, Elsevier, vol. 52(C), pages 22-32.
    4. Mather, David & Boughton, Duncan & Jayne, T.S., 2013. "Explaining smallholder maize marketing in southern and eastern Africa: The roles of market access, technology and household resource endowments," Food Policy, Elsevier, vol. 43(C), pages 248-266.
    5. Reyes, Byron & Donovan, Cynthia & Bernsten, Richard H. & Maredia, Mywish K., 2012. "Market participation and sale of potatoes by smallholder farmers in the central highlands of Angola: A Double Hurdle approach," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126655, International Association of Agricultural Economists.
    6. Sibande, Lonester & Bailey, Alastair & Davidova, Sophia, 2017. "The impact of farm input subsidies on maize marketing in Malawi," Food Policy, Elsevier, vol. 69(C), pages 190-206.
    7. Momanyi, Denis & Lagat, Prof. Job K. & Ayuya, Dr. Oscar I., 2016. "Analysis of the Marketing Behaviour of African Indigenous Leafy Vegetables among Smallholder Farmers in Nyamira County, Kenya," MPRA Paper 69202, University Library of Munich, Germany, revised 27 Jan 2016.
    8. Kadjo, Didier & Ricker-Gilbert, Jacob & Tahirou, Abdoulaye & Shively, Gerald & Baco, Nasser, 2016. "Adverse selection in informal maize markets in Benin," 2016 Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 249289, African Association of Agricultural Economists (AAAE).
    9. Montalbano, P. & Pietrelli, R. & Salvatici, L., 2018. "Participation in the market chain and food security: The case of the Ugandan maize farmers," Food Policy, Elsevier, vol. 76(C), pages 81-98.
    10. Keita, Moussa, 2012. "Impact of subsidized inputs credits on land allocation and market-oriented agriculture in rural households in Mali," MPRA Paper 57542, University Library of Munich, Germany.
    11. Proscovia Renzaho Ntakyo & Marrit Berg, 2019. "Effect of market production on rural household food consumption: evidence from Uganda," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 11(5), pages 1051-1070, October.
    12. Yao, B. & Shanoyan, A., 2018. "The Use of Mobile Money Application and Smallholder Farmer Market Participation: Evidence form Cote d Ivoire and Tanzania," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277259, International Association of Agricultural Economists.
    13. Dzanku, Fred M., 2015. "Household-specific food price differentials and high-value crop production in rural Ghana," Food Policy, Elsevier, vol. 57(C), pages 73-82.
    14. Jaimovich, Dany, 2015. "Missing Links, Missing Markets: Evidence of the Transformation Process in the Economic Networks of Gambian Villages," World Development, Elsevier, vol. 66(C), pages 645-664.
    15. Md Shafiul Azam & Katsushi Imai & Raghav Gaiha, 2012. "Agricultural Supply Response and Smallholders Market Participation: the Case of Cambodia," Economics Discussion Paper Series 1208, Economics, The University of Manchester.
    16. Mignouna, D.B. & Abdoulaye, T. & Alene, A. & Akinola, A.A. & Manyong, V.M., 2015. "Drivers of Market Participation Decisions among Small-scale Farmers in Yam Growing Areas of Nigeria and Ghana," 2015 Conference, August 9-14, 2015, Milan, Italy 230219, International Association of Agricultural Economists.
    17. Rios, Ana R. & Masters, William A. & Shively, Gerald E., 2008. "Linkages between Market Participation and Productivity: Results from a Multi-Country Farm Household Sample," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6145, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    18. Cazzuffi, Chiara & McKay, Andrew, 2012. "Rice market participation and channels of sale in rural Vietnam," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126566, International Association of Agricultural Economists.
    19. Fred Mawunyo Dzanku, 2018. "Rational But Poor? An Explanation for Rural Economic Livelihood Strategy," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(2), pages 365-381, June.
    20. Mekonnen, Tigist, 2017. "Impact of agricultural technology adoption on market participation in the rural social network system," MERIT Working Papers 2017-008, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    More about this item

    Keywords

    Farm Management; International Development;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:iaae15:211895. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/iaaeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.