The Impact of Employment Uncertainty in the Off-farm Labor Market on Developing Country Farmers' Crop Choice Decisions
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Date
2004-08-31
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Abstract
The purpose of this research has been to examine the link between agricultural production decisions, particularly ex ante crop choice decisions, and off-farm labor income opportunities available to the cultivator households in a developing country context. The cultivator households in some areas of the developing countries use off-farm labor supply as an insurance against shocks in crop income. Yet employment is uncertain in the off-farm labor market. This thesis hypothesizes that, given limited opportunities for ex post consumption smoothing, employment uncertainty in the labor market influences risk averse farmers' ex ante crop choice decisions and farmers would opt for more conservative crop choices in case they expect unfavorable supply opportunities in the off-farm labor market at a later period.
A two period stochastic dynamic programming model is developed. It has been shown that under some particular conditions, risk averse farmers' expectations of a lower depth of the labor market or a lower wage rate in that market in the next period would lead them to allocate more land to crops with safer returns. Again, in the presence of some risk-mitigating factors such as irrigation, farmers would take more risks in crop choices. For estimation, a panel data set from the ICRISAT survey of the semi-arid areas of India is used. Fixed effects and random effects Tobit specifications for estimating household land share and fixed effects and random effects specifications for estimating household crop returns and land share differences have been used. The regression results indicate significant impact of household expectation of the harvesting period male unemployment rates in the off-farm labor market on crop choices, taking the planting period male unemployment rates as a proxy. The results also indicate strong influence of household irrigated land share on crop choices. The results lend weak support for the linkage between crop choice decisions and the share of non-agricultural labor in total labor demand in the off-farm labor market.
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India, off-farm labor market, risk, crop choice
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Degree
PhD
Discipline
Economics
