Investing in Agriculture when it is worth it. Empirical evidence from rural Uganda

One of the reasons for the persistent low agricultural productivity in Sub-Saharan Africa isthe lack of adoption of protable agricultural technologies. Yet, what is protable in a controlledexperimental setting may not be protable in a real-world setting. Estimating the returns to asingle input is, in fact, challenging as farmers may respond to adoption by re-optimizing the useof other inputs. This paper explores farmers behavioral response to a positive random shockon future productivity by disentangling inputs returns from farmers' response. Using a uniquehousehold panel dataset collected in rural Uganda, I proxy a future productivity shock with thebirth of a female calf against that of a male calf. Calves have no technical returns, but femalecalves will become cows producing milk, providing a stable source of income, while bulls andoxen are of little use in this context. The main OLS and difference-in-differences results showthe existence of a crowd-in effect. Farmers react to the birth of a female calf by increasinginputs' expenditures. They invest more on their cattle's health, increase hired labor and aremore willing to pay for cattle-related investments but not for other activities. This increase ininvestments leads to an increase in milk production and revenues that lasts over time. Furtherresults show that economies of scale associated with the number of female animals seem toexplain this behavioral response.