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The engagement in the non-agricultural sector as a risk-mitigating strategy in rural Pakistan

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  • Tania Rajadel

    () (TEAM)

Abstract

The paper investigates whether, as is often suggested by the literature, diversification towards the non-agricultural sector is considered as a risk- mitigating strategy by rural Pakistani households. This issue has already been addressed but usually as an ex post mechanism, i.e. smoothing consumption or income once a shock has occurred. The present work tests whether ex ante engagement in the non-agricultural sector is partly motivated by a desire to mitigate risk. The main feature of the paper is the use of an ex ante food vulnerability estimate. Vulnerability is defined as the probability of falling below a given threshold in the future. After constructing a vulnerability variable for each household, we run three separate probit estimations, one for each type of non-agricultural activity (unqualified wage labour, qualified wage labour, and self-employment), in order to evaluate the impact of vulnerability on participation to the non-agricultural sector. We take into account the endogeneity of the vulnerability estimate. We find that, conversely to what is usually assumed in the literature, vulnerable households are not more likely than others to engage in the non-agricultural sector mainly because of the inefficient organisation of wage labour markets and entry barriers.

Suggested Citation

  • Tania Rajadel, 2004. "The engagement in the non-agricultural sector as a risk-mitigating strategy in rural Pakistan," Cahiers de la Maison des Sciences Economiques bla05004, Université Panthéon-Sorbonne (Paris 1).
  • Handle: RePEc:mse:wpsorb:bla05004
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2005/Bla05004.pdf
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    References listed on IDEAS

    as
    1. Hervé Boulhol, 2005. "Pro-competitive policies and the convergence of markups," Cahiers de la Maison des Sciences Economiques bla05019, Université Panthéon-Sorbonne (Paris 1).
    2. Hindriks, F.A. & Nieuwenhuijsen, H.R. & de Wit, G., 2000. "Comparative Advantages in Estimating Markups," Papers 0003/e, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM.
    3. Basu, Susanto, 1995. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," American Economic Review, American Economic Association, vol. 85(3), pages 512-531, June.
    4. Robert E. Hall, 1986. "Market Structure and Macroeconomic Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 285-338.
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    More about this item

    Keywords

    Risk; insurance; vulnerability; non-farm employment; Pakistan.;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • 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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