Abstract
This paper examines the effects of aging and income subsidies on farm efficiency in Korea by utilizing the Korean Farm Household Economic Survey from 2008 to 2015. A stochastic frontier model with a non-monotonic assumption on the effect of efficiency factors is implemented to reflect a super aging and less developed production structure in Korean agriculture. This study finds continuously decreasing farm efficiency with age, which contradicts the commonly assumed inverted-U relationship between age and productivity. Especially, we find that labor is the most important factor to explain recent farm efficiency losses in Korea. Furthermore, this paper finds that the Korean income subsidy has a negative effect on farm efficiency. Our results provide two policy implications for the government of Korea. First, even though the “Returns to the Farm and Rural program” is appropriate, Korea should modify the program to encourage more young people to participate this program rather than old people, in order to attain the sustainable development of the agricultural sector. Second, a policy maker in Korea should consider a coupled subsidy that is directly related to farm production rather than a decoupled subsidy, regardless of the lower efficiency of the coupled subsidy in achieving agricultural development.
Highlights
In most parts of the world, the increasing age structure of the population is a common phenomenon due to lower fertility rates and longer life expectancy [1]
The low elasticity of capital is not consistent with previous studies, such as Battese and Broca [32], Fuwa et al [20], and Sharif and Dar [33]. This result could be explained by excessive investments in agriculture from the large-scale government subsidies that aim to compensate for losses in the agricultural sector from trade liberalization, such as the 1990s World Trade Organization (WTO) regime and free trade agreements (FTAs)
This paper investigates the impact of age on farm efficiency in Korea using the Farm Household Economic Survey (FHES) longitudinal dataset from 2008 to 2015 to examine the unclear relationship between aging and productivity
Summary
In most parts of the world, the increasing age structure of the population (hereafter called “aging”) is a common phenomenon due to lower fertility rates and longer life expectancy [1]. Without controversy, aging has a negative effect on labor participation based on a reduction of working-age people [2], which implies a declining labor supply. The relationship between aging and productivity is not settled [3]. Aging is associated with positive factors of productivity, such as experience and skills, as well as negative factors such as technical knowledge and creativity. Considering that productivity is closely related to economic growth, the impact of aging on development issues is not settled. Previous studies do not answer the question of whether sustainable development is possible in terms of aging and productivity
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