The impact of rural nonfarm employment on agricultural input use and productivity in Bangladesh

Abstract

Research questions: Are there any benefits from increasing nonfarm employment on expenditures of agricultural production? Is there any impact of nonfarm employment on family labour use in agricultural production? and Is there any gain in the technical efficiency of production through nonfarm employment participation? Evidence from the rural livelihood literature shows that rural farm households engage in nonfarm employment to supplement their household income in developing countries. Therefore, it raises the question of whether nonfarm employment complements or competes with agricultural production due to a possible shift in farm household labour to nonfarm employment. The consequences of participation in nonfarm employment on agricultural production could be two-fold. On the one hand, the increased cash earnings from nonfarm employment could be used to purchase agricultural inputs to intensify production. On the other hand, agricultural production might be negatively affected due to a shortage of labour. Lately, the agriculture sector in Bangladesh is experiencing this scenario due to a high demand for labour during crop planting and harvesting periods. Therefore, the direction of the impact of nonfarm employment on agricultural production needs to be investigated, especially in an agricultural dependent country like Bangladesh. Moreover, the research in this area still inconclusive based on the mixed findings in different countries. Surprisingly, there is no study appears regarding the impact of nonfarm employment on agricultural production in Bangladesh. The Bangladesh Integrated Household Survey (BIHS) data 2015, collected by the International Food Policy Research Institute (IFPRI) has been used in this study. To overcome the endogeneity issues of nonfarm income and censored nature of agricultural input expenditures, IV Tobit model is used to identify the effects of nonfarm employment on the expenditures of major agricultural inputs. In addition, treatment effect models (Nearest Neighbour Matching, Propensity Score Matching, and Inverse Probability Weighted Regression Adjustment) have been used to check the robustness of the findings obtained by the IV Tobit estimation. IV 2SLS estimation is also used to identify the effects of nonfarm employment on the use of family labour in agricultural production. Finally, the impact of nonfarm employment on the technical efficiency of production is investigated using the Stochastic Frontier Production model. The results show that nonfarm income has a positive impact on the total crop expenditure as well as expenditures on major purchased agricultural inputs (equipment, seed, fertilizer, purchased labour). Also, the robustness checks confirm the findings obtained by IV Tobit model. The findings also show that an increase in nonfarm income is negatively associated with the use of male family labour in crop production. Moreover, the technical inefficiency in agricultural production decreases when nonfarm income increases. Overall, the findings of this study suggest that nonfarm employment exerts an income effect on agricultural production by reducing the liquidity constraint and intensifying major purchased inputs. Thus, introducing policies that would increase rural nonfarm employment opportunities to rural households complements agricultural production and that could be a means to increase food production, ultimately leading to food availability as well as food security.