Three Essays on Consumption Behavior, Credit, and Labor Supply of Farm Households in Sub-Saharan Africa: Evidence from Uganda

Abstract

Consumption patterns, credit, and labor supply are determinants of human welfare, and also indicators of a country's economic progress, poverty, and inequalities. In this study, I review many of the stylized facts regarding consumption behaviors, credit, and the decision to engage in off-farm labor supply. I also put the life cycle model into an empirical model and perform testing. This is done in a three-essay format with a focus on the country of Uganda. In the first essay, I test whether farm households’ consumption behavior is consistent with an optimization process predicted by economic theory. In essay II, I evaluate the impact of borrowing constraints on farm households’ consumption behavior when consumers or producers do not have access to financial services due to market imperfections. In essay III, I investigate the determinants of off-farm participation and labor supply (hours) of farm households in Uganda. Farm household off-farm labor is perceived as an important strategy to cope with credit constraints and an instrument to improve livelihoods and food security, especially in Uganda, and generally in Sub-Saharan Africa. I use data based on the farm household survey conducted in East Africa by the World Bank as part of the Living Standards Measurement Study-Integrated Surveys on Agriculture (LSMS-ISA) project. I use three years of survey data from 2009/2010, 2010/2011, and 2011/2012, covering the district of Kampala and 72 (58 rural and 14 urban) Enumeration Areas (EAs) in the five regions of the country. In Essay I, I find that the Euler equation of consumption is rejected and that the “life cycle model” of inter-temporal optimization does not characterize consumption behavior in Uganda. In Essay II, I estimate the Euler equation when borrowing constraints do not have an impact on consumption behavior using the inter-temporal optimization framework. I found that the life cycle model without borrowing constraint restrictions is “rejected”. In Essay III, I look at the decision to engage in off-farm work and labor supply hours using a double hurdle model. I find that heads of households who completed a secondary level of education and above engage more in off-farm work at the prevailing market wage. The reservation wage at which an educated head of a farm household in Uganda is willing to work seems to match ongoing and established market wage in the informal sector. Thus, if the head of household chose to work on the farm and not off-farm, it was