The Effects of Non-Farm Enterprises on Farm Households’ Income and Consumption Expenditure in Rural India

. Zeeshan; Geetilaxmi Mohapatra; Arun Kumar Giri

doi:10.7201/earn.2019.01.10

Authors

. Zeeshan Birla Institute of Technology and Science (BITS)
Geetilaxmi Mohapatra Birla Institute of Technology and Science (BITS)
Arun Kumar Giri Birla Institute of Technology and Science (BITS)

DOI:

https://doi.org/10.7201/earn.2019.01.10

Keywords:

Consumption Expenditure, Farm Income, Panel Probit, Propensity Score Matching, Rural Non-farm Enterprises

Abstract

Nationally representative data of farm households from India Human Development Surveys (IHDS) conducted in 2004-05 and 2011-12 are explored. This article analyzes the effects of income diversification in non-farm enterprises on farm households’ income and consumption expenditure in rural India. Panel probit models were built to examine the determinants of income diversification while propensity score matching was used to account selection bias resulting from unobserved factors and controls for structural differences between diversified and undiversified farm households. The results suggest that by engaging in non-farm enterprises, rural farm households make positive gains in farm income and consumption expenditure.

Downloads

Download data is not yet available.

Author Biographies

. Zeeshan, Birla Institute of Technology and Science (BITS)

Ph.D. Student, Dept. of Economics and Finance

Geetilaxmi Mohapatra, Birla Institute of Technology and Science (BITS)

Assistant Professor, Dept. of Economics and Finance

Arun Kumar Giri, Birla Institute of Technology and Science (BITS)

Associate Professor, Dept. of Economics and Finance

References

Abdulai, A. & Crolerees, A. (2001). “Determinants of Income Diversification amongst Rural Households in Southern Mali”. Food Policy, 26(4), 437-452. http://dx.doi.org/10.1016/S0306-9192(01)00013-6.

Adams (Jr), R.H. (2001). Non-Farm Income, Inequality, and Poverty in Rural Egypt and Jordan. Policy Research Working Paper 2572. Washington, D.C.: World Bank. Retrieved from: https://openknowledge.worldbank.org/bitstream/handle/10986/19687/multi0page.pdf?sequence=1&isAllowed=y. https://doi.org/10.1596/1813-9450-2572

Adams (Jr), R.H. & He, J.J. (1995). Sources of Income Inequality and Poverty in Rural Pakistan. Research Report No. 102. Washington, D.C.: International Food Policy Research Institute. Retrieved from: http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/125568/filename/125599.pdf.

Ali, M. & Peerlings, J. (2012). “Farm Households and Non-Farm Activities in Ethiopia: Does Clustering influence Entry and Exit?” Agricultural Economics, 43(3), 253-266. http://dx.doi.org/10.1111/j.1574-0862.2012.00580.x.

Azam, M.S., Imai, K.S. & Gaiha, R. (2012). Agricultural Supply Response and Smallholders Market Participation – The Case of Cambodia. Discussion Paper DP2012-09. Kobe, Japan: Research Institute for Economics and Business Administration, Kobe University. Retrieved from: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2012-09.pdf.

Babatunde, R.O. & Qaim, M. (2009). “Patterns of Income Diversification in Rural Nigeria: Determinants and Impacts”. Quarterly Journal of International Agriculture, 48(4), 305-320.

Barrett, C.B. & Reardon, T. (2000). Asset, Activity and Income Diversification among African Agriculturist: Some Practical Issues. Ithaca: Cornell University. Retrieved from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=257344.

Barrett, C., Reardon, T. & Webb, P. (2001). “Non-Farm Income Diversification and Household Livelihood Strategies in Rural Africa: Concepts, Dynamics and Policy Implication”. Food Policy, 26(4), 315-331. http://dx.doi.org/10.1016/S0306-9192(01)00014-8.

Becker, S. & Ichino, A. (2002). “Estimation of Average Treatment Effects based on Propensity Scores”. Stata Journal, 2(4), 358-377. https://doi.org/10.1177/1536867X0200200403

Benjamin, C. (1994). “The Growing Importance of Diversification Activities for French Farm Households”. Journal of Rural Studies, 10(4), 331-342. http://dx.doi.org/10.1016/0743-0167(94)90043-4.

Birthal, P.S. & Singh, M.K. (1995). “Structure of Rural Income Inequality: A Study in Western Uttar Pradesh”. Indian Journal of Agricultural Economics, 50(2), 168-175.

Chand, R., Prasanna, P.A.L. & Singh, A. (2011). “Farm Size and Productivity: Understanding the Strengths of Smallholders and their Livelihoods”. Economic and Political Weekly, 46(26/27), 5-11.

Collier, P., Radwan, S. & Wangwe, S. (1986). Labor and Poverty in Rural Tanzania. Oxford: Calarendon Press.

Coppard, D. (2001). The Rural Non-Farm Economy of India: A Review of the Literature. NRI Report 2662. London: Natural Resources Institute. Retrieved from: https://assets.publishing.service.gov.uk/media/57a08d67ed915d3cfd0019f0/coppard-2662.pdf.

Dabalen. A., Paternostro, S. & Pierre, G. (2004). The Returns to Participation in Non-farm Sector in Rwanda. Policy Research Working Paper 3462. Washington, D.C.: World Bank. Retrieved from: http://documents.worldbank.org/curated/en/841091468777973623/pdf/wps3462.pdf. https://doi.org/10.1596/1813-9450-3462

Davis, B., Winters, P., Carletto, G., Covarrubias, K., Quinones, E., Zezza, A., Stamoulis, K., Bonomi, G. & DiGiuseppe, S. (2007). Rural Income Generating Activities: A Cross Country Comparison. ESA Working Paper 07-16. Rome: Agricultural Development Economics Division, Food and Agriculture Organization. Retrieved from: http://www.fao.org/3/a-aj305e.pdf.

Davis, J. (2006). “Rural Non-Farm Livelihoods in Transition Economies: Emerging Issues and Policies”. Journal of Agricultural and Development Economics, 3(2), 180-224.

Davis, J. & Pearce, D. (2000). The Rural Non-Farm Economy in Central and Eastern Europe. Discussion Paper 2000/04. Chatham: Natural Resources Institute. Retrieved from: https://pdfs.semanticscholar.org/47d4/3496dcf7597d0b95027ad654ce2f35086a75.pdf.

Dedehouanou, S.F., Ousseini, A., Harouna, A.L. & Maimounata, J. (2015). “Spillover from Off-Farm Self-Employment Opportunities in Rural Niger”. World Development, 105, 428-442. http://dx.doi.org/10.1016/j.worlddev.2017.12.005.

Deininger, K. & Olinto, P. (2001). “Rural Nonfarm Employment and Income Diversification in Colombia”. World Development, 29(3), 455-465. http://dx.doi.org/10.1016/S0305-750X(00)00106-6.

Desai, S., Reeve, V. & National Council of Applied Economic Research. (2005). India Human Development Survey (IHDS). ICPSR22626-v8. Ann Arbor, MI: Interuniversity Consortium for Political and Social Research [distributor], 2010-06-29. https://www.icpsr.umich.edu/icpsrweb/ICPSR/studies/22626.

Desai, S., Reeve, V. & National Council of Applied Economic Research. (2012). India Human Development Survey-II (IHDS-II). ICPSR36151-v2. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2015-07-31. https://www.icpsr.umich.edu/icpsrweb/ICPSR/studies/36151.

Ellis, F. (2000). “The Determinants of Rural Livelihood Diversification in Developing Countries”. Journal of Agricultural Economics, 51(2), 289-302. http://dx.doi.org/10.1111/j.1477-9552.2000.tb01229.x.

Haggblade, S., Hazell, P. & Reardon, T. (2007). Transforming the Rural Non-Farm Economy: Opportunities and Threats in the Developing World. Baltimore: Johns Hopkins University Press, USA: International Food Policy Research Institute. Retrieved from: http://ebrary.ifpri.org/cdm/ref/collection/p15738coll2/id/126215.

Jabo, M., Ismail, M., Abdullah, A. & Shamsudin, M. (2014a). “Is the Participation in the Non-Farm Income Generating Activities Help Smooth Food Consumption? Evidence from Rural Nigeria”. Communication presented to: Australian Academy of Business and Social Sciences Conference, Kuala Lumpur. Retrieved from: https://www.aabss.org.au/research-papers/participation-non-farm-incomegenerating-activities-help-smooth-food-consumption.

Jabo, M., Ismail, M., Abdullah, A. & Shamsudin, M. (2014b). “The Impact of Non- Farm Income Generating Activities on the Food Security Status of Rural Households in Nigeria”. International Journal of Agricultural Science and Veterinary Medicine, 2(4), 121-131.

Kaur, S., Kulkarni, V.S., Gaiha, R. & Pandey, M.K. (2010). “Prospects of Non-Farm Employment and Welfare in Rural Areas”. ASARC Working Paper 2010/05, Invited contribution to: Routledge Handbook of South Asian Economics. Retrieved from: https://crawford.anu.edu.au/acde/asarc/pdf/papers/2010/WP2010_05.pdf.

Lanjouw, P. (1999). “Rural Non-Agricultural Employment and Poverty in Ecuador”. Economic Development and Cultural Change, 48(1), 91-122. http://dx.doi.org/10.1086/452448.

Lanjouw, P. (2007). “Does the Rural Non-Farm Economy Contribute to Poverty Reduction”. In Haggblade, T., Hazell, S. & Reardon, P.B.R. (Eds.): Transforming the rural non-farm economy: Opportunities and threats in the Developing World (pp. 55-82). Baltimore, USA: International Food Policy Research Institute.

John Hopkins University Press. Lanjouw, J.O. & Lanjouw, P. (2001). “The Rural Non-Farm Sector Issues and Evidences”. Agricultural Economics, 26(1), 1-23. http://dx.doi.org/10.1016/S0169-5150(00)00104-3.

Lanjouw, P. & Murgai, R. (2008). Poverty Decline, Agricultural Wages and Non-Farm Employment in Rural India: 1983-2004. Working Paper 437. Stanford: Stanford Centre for International Development, Stanford University. Retrieved from: http://documents.worldbank.org/curated/en/942971468051527491/Povertydecline-agricultural-wages-and-non-farm-employment-in-rural-India-1983-2004. https://doi.org/10.1596/1813-9450-4858

Lanjouw, P. & Shariff, A. (2002). Rural Non-farm Employment in India: Access, Income and Poverty Impact. Working Paper 81. New Delhi: National Council of Applied Economic Research. Retrieved from: http://agris.fao.org/agris-search/search.do?recordID=GB2013201219.

Lanjouw, P. & Shariff, A. (2004). “Rural Non-Farm Employment in India: Access, Income and Poverty Impact”. Economic and Political Weekly, 39(40), 4429-4446.

Loening, J., Rijkers, B. & Soderbom, M. (2008). Non-farm Microenterprise Performance and the Investment Climate: Evidence from Rural Ethiopia. Policy Research Working Paper 4577. The World Bank. Retrieved from: http://documents.

worldbank.org/curated/en/243931468037784690/pdf/wps4577.pdf.

Mishra, A.K. & Goodwin, B.K. (1997). “Farm Income Variability and the Supply of Off-farm Labor”. American Journal of Agricultural Economics, 79(3), 880-887. http://dx.doi.org/10.2307/1244429.

Osarfo, D., Senadza, B. & Nketiah-Amponsah, E. (2016). “The Impact of Non-Farm Activities on Rural Farm Household Income and Food Security in the Upper East and Upper West Regions of Ghana”. Theoretical Economics Letters, 6(3), 388-400. http://dx.doi.org/10.4236/tel.2016.63043.

Owoo, N.S. & Naudé, W. (2014). Non-Farm Enterprise Performance and Spatial Autocorrelation in Rural Africa: Evidence from Ethiopia and Nigeria. IZA Discussion Paper 8295. World Bank. Retrieved from: http://www.worldbank.org/

content/dam/Worldbank/Feature%20Story/Africa/afr-nkechi-owoo.pdf.

Owusu, V., Abdulai, A. & Abdul-Rahman, S. (2010). “Non-Farm Work and Food Security among Farm Households in Northern Ghana”. Food Policy, 36(2), 108-118. http://dx.doi.org/10.1016/j.foodpol.2010.09.002.

Rao, E.J.O. & M. Qaim. (2011). “Supermarkets, Farm Household Income, and Poverty: Insights from Kenya”. World Development, 39(5), 784-796. http://dx.doi.org/10.1016/j.worlddev.2010.09.005.

Reardon, T. & Taylor, J.E. (1996). “Agro-climatic Shock, Income Inequality and Poverty: Evidence from Burkina Faso”. World Development, 24(4), 901-914. http://dx.doi.org/10.1016/0305-750X(96)00009-5.

Reardon, T., Berdegue, J., Barrett, C.B. & Stamoulis, K. (2007). “Household Income Diversification into Rural Non-Farm Activities”. In Haggblade, S., Hazell, P. & Reardon, T. (Eds.): Transforming the Rural Non-farm Economy: Opportunities and Threats in the Developing World (pp. 115-140). Baltimore: Johns Hopkins University Press.

Reardon, T., Stamoulis, K., Cruz, M.E., Balaiscan, A., Berdegue, J. & Banks, B. (1998). Rural Non-Farm Income in Developing Countries. The State of Food and Agriculture 1998 (Part III). Rome: Food and Agriculture Organization of The United nations. Retrieved from: www.fao.org/docrep/017/w9500e/w9500e.pdf.

Rubin, D.B. (2001). “Using Propensity Scores to Help Design Observational Studies: Application to the Tobacco Litigation”. Health Services & Outcomes Research Methodology, 2(3-4), 169-188. http://dx.doi.org/10.1023/A:1020363010465.

Sen, A. (1994). “Rural Labor Markets and Poverty”. Indian Journal of Labour Economics, 37(4), 575-607.

Senadza, B. (2012). “Non-Farm Income Diversification in Rural Ghana: Patterns and Determinants”. African Development Review, 24(3), 233-244. http://dx.doi.org/10.1111/j.1467-8268.2012.00322.x.

Senadza, B. (2014). “Income Diversification Strategies among Rural Households in Developing Countries Evidence from Ghana”. African Journal of Economic and Management Studies, 5(1), 75-92. http://dx.doi.org/10.1108/AJEMS-05-2012-0029.

Shehu, A. & Siddique, S.F. (2014). “A Propensity Score Matching Analysis of the Impact of Participation in Non-Farm Enterprise Activities on Household Wellbeing in Rural Nigeria”. UMK Procedia, 1, 26-32. http://dx.doi.org/10.1016/j.umkpro.2014.07.004.

Shi, X., Heerink, N. & Qu, F. (2007). “Choices between different Off-Farm Employment Sub-categories: An Empirical Analysis for Jiangxi Province, China”. China Economic Review, 18(4), 438-455. http://dx.doi.org/10.1016/j.chieco.2006.08.001.

Woldenhanna, T. & Oskam, A. (2001). “Income Diversification and Entry Barriers: Evidence from Tigray region of Northern Ethiopia”. Food Policy, 26, 351-365. http://dx.doi.org/10.1016/S0306-9192(01)00009-4.

World Bank. (2003). Reaching the Rural Poor: A Renewed Strategy for Rural Development. Washington, D.C.: World Bank. Retrieved from: http://documents.worldbank.org/curated/en/227421468165890144/pdf/267630REACHING0THE0RURAL0POOR0.pdf.