IS NON-FARM INCOME RELAXING FARM INVESTMENT LIQUIDITY CONSTRAINTS FOR MARGINAL FARMS? AN INSTRUMENTAL VARIABLE APPROACH

Year 2012, Volume: 4 Issue: 1, 123 - 132, 01.06.2012

Kidanemariam Gebregziabher Erik Mathijs Miet Maertens Jozef Deckers Hans Bauer Kindeya Gebrehiwot

Abstract

This paper tests the hypothesis that off-farm income relaxes the liquidity
constraints of farm households using survey data derived from 734 households
from eight villages, drawn from the three agro-climatic zones of northern
Ethiopia. The results of the econometric models show that off-farm income
positively affects agricultural input expenditure but negatively affects livestock
investment. This may be explained by the higher per capita land holdings of
households who invest in improved agricultural inputs compared to those who
invest in livestock. Our results show the complementarities between off-farm
activities and productivity enhancing investment for agricultural inputs. However,
off-farm activities may be competing for labor resources for landless and near
landless households (those who invest in livestock).

Keywords

off-farm-farm linkage* IVTobit *

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