The Impact of Extension Services on Farm Level Outcomes: An Instrumental Variable Approach

Abstract

Many studies show that interaction with extension services impact farmer’s technology adoption decisions and profitability levels. However, analysis of extension impact across all farm systems whilst controlling for endogeneity biases is less common. This research attempts to redress that research gap by firstly discussing the various biases related to the motivation to engage with extension services, omitted variable bias and measurement error, and subsequently applying instrumental variable (IV) regression estimation to the relationship between extension engagement and farm level outcomes, namely family farm income over a pooled panel dataset. Distance to the local advisory office and the introduction of a policy change were chosen as valid and relevant instruments. The results indicate a positive impact of extension engagement on farm income, and imply that an ordinary least squares approach underestimates the benefits of extension engagement. Accordingly, increased advisory activity could improve the performance of the sector significantly, and this could be a useful policy tool to achieve the targets as set out by the Irish governments Food Wise 2025 plan.