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Do Cows Have Negative Returns? The Evidence Revisited

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  • Gehrke, Esther

    () (German Development Institute)

  • Grimm, Michael

    () (University of Passau)

Abstract

This paper addresses the apparent paradox between widespread support of cattle farming by agricultural policy interventions and negative returns to cattle as stressed in recent works. Using a representative panel dataset for Andhra Pradesh, a state in the south of India, we examine average and marginal returns to cattle. One variant of our identification strategy builds on instrumental variable estimation, where the exposure to the National Rural Employment Guarantee Act (NREGA) is used as an instrument for investment in cattle. We find average returns in the order of -2% at the mean, but they vary across the cattle value distribution between negative 35% (in the lowest quintile) and positive 5% (in the highest). In contrast, marginal returns are positive over the entire distribution and, on average, as high as 13% annually. Both, average and marginal returns vary considerably not only across scale, but also across cattle breed and individual animal value. Our results suggest that cattle farming is associated with sizable non-convexities in the production technology and that substantial economies of scale as well a high upfront expenses of acquiring high productivity animals might trap poorer households in low-productivity asset levels.

Suggested Citation

  • Gehrke, Esther & Grimm, Michael, 2014. "Do Cows Have Negative Returns? The Evidence Revisited," IZA Discussion Papers 8525, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp8525
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    10. Dodlova, Marina & Göbel, Kristin & Grimm, Michael & Lay, Jann, 2015. "Constrained firms, not subsistence activities: Evidence on capital returns and accumulation in Peruvian microenterprises," Labour Economics, Elsevier, vol. 33(C), pages 94-110.
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    Cited by:

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    3. Olivia Bertelli, 2019. "Investing in agriculture when it is worth it. Evidence from rural Uganda," Working Papers DT/2019/05, DIAL (Développement, Institutions et Mondialisation).
    4. Muscillo, Alessio & Pin, Paolo & Razzolini, Tiziano & Serti, Francesco, 2018. "Does "Network Closure" Beef up Import Premium?," IZA Discussion Papers 12036, Institute of Labor Economics (IZA).
    5. Anagol, Santosh, 2017. "Adverse selection in asset markets: Theory and evidence from the Indian market for cows," Journal of Development Economics, Elsevier, vol. 129(C), pages 58-72.

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    More about this item

    Keywords

    livestock; profits; investment; India;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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