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Is off-farm income driving on-farm investment?

Author

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  • Thia Hennessy

    () (Rural Economy and Development Programme, Teagasc, Athenry, Co. Galway, Ireland)

  • Mark O’ Brien

    (Rural Economy and Development Programme, Teagasc, Athenry, Co. Galway, Ireland)

Abstract

National Farm Survey data for Ireland shows that in the ten year period from 1995 to 2005 average farm incomes declined by almost 17 percent while net new investment increased by almost 30 percent in real terms. This paper explores the factors affecting farmers’ decisions to invest in farming. In particular, the role of non-farm income in the farm investment decision is explored. The theory that farmers may be investing non-farm income in the farm business is tested empirically. Economic theory suggests that it may be rational for part-time farmers to substitute capital for labour, thereby releasing labour for off-farm work while still maintaining farm output. The results of the econometric models estimated in this paper lead us to reject this hypothesis. The results indicate that, when farm size, system and income are controlled for, the presence of off-farm income earned by the farmer decreases the probability of farm investment and has no significant effect on the level of farm investment. The effect of off-farm income earned by the farmer’s spouse is less clear. The presence and level of the spouse’s off-farm income increases the probability of farm investment, although it has no significant impact on the level of investment.

Suggested Citation

  • Thia Hennessy & Mark O’ Brien, 2007. "Is off-farm income driving on-farm investment?," Working Papers 0704, Rural Economy and Development Programme,Teagasc.
  • Handle: RePEc:tea:wpaper:0704
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    File URL: http://www.teagasc.ie/rural-economy/downloads/workingpapers/07wpre04.pdf
    File Function: First version, 2007
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    References listed on IDEAS

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    1. Gary S. Becker, 1981. "A Treatise on the Family," NBER Books, National Bureau of Economic Research, Inc, number beck81-1, April.
    2. 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.
    3. Reardon, Thomas, 1997. "Using evidence of household income diversification to inform study of the rural nonfarm labor market in Africa," World Development, Elsevier, vol. 25(5), pages 735-747, May.
    4. Christoph R. Weiss, 1999. "Farm Growth and Survival: Econometric Evidence for Individual Farms in Upper Austria," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 103-116.
    5. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
    6. Sckokai, Paolo & Moro, Daniele, 2002. "Modelling The Cap Arable Crop Regime Under Uncertainty," 2002 Annual meeting, July 28-31, Long Beach, CA 19860, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Michael T. Wallace & Joan E. Moss, 2002. "Farmer Decision-Making with Conflicting Goals: A Recursive Strategic Programming Analysis," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(1), pages 82-100.
    8. Serra, Teresa & Goodwin, Barry K. & Featherstone, Allen M., 2004. "Determinants Of Investments In Non-Farm Assets By Farm Households," 2004 Annual meeting, August 1-4, Denver, CO 20329, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Ahituv, Avner & Kimhi, Ayal, 2002. "Off-farm work and capital accumulation decisions of farmers over the life-cycle: the role of heterogeneity and state dependence," Journal of Development Economics, Elsevier, vol. 68(2), pages 329-353, August.
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    Cited by:

    1. Williams, John & McSweeney, Peter & Salmon, Robert, 2014. "Australian Farm Investment: Domestic and Overseas Issues," Australasian Agribusiness Perspectives 234408, University of Melbourne, Melbourne School of Land and Environment.
    2. Sarah, Alobo, 2009. "Value and Premium for Titled Agricultural Land in Uganda," Research Theses 243467, Collaborative Masters Program in Agricultural and Applied Economics.

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