Can Agricultural Productivity Growth Shape The Development of the Non- Farm Rural Economy? Geographically Localized Evidence from Zambia

There is a general consensus in the economics literature that growth in agricultural productivity is an engine of economic structural transformation in low income countries via indirect linkages and multiplier effects. However, the empirical support for this hypothesis in the Africa is very limited, and criticisms have been raised as to its applicability in the African context. In this study, we estimate the strength of possible ‘labor linkages’ among small farmers in Zambia, helping to provide a much-needed empirical micro-foundation in the African context. In particular, we use nationally representative surveys to estimate the relationship between multiple years of lagged district level crop productivity and small farm household non-farm labor participation. We find that a doubling of average district crop productivity leads to a 13%-17% increase in non-farm labor participation among farm households. Moreover, this effect is most pronounced among smaller farms; a doubling of median district crop productivity among farms under two hectares cultivated leads to a 24%-31% increase in in non-farm labor participation among non-farm households. The results lend some credibility to the structural transformation hypothesis, and in particular, the idea of labor linkages, in the African setting.