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Household Non-Farm Income: Any Influence on Agricultural
Productivity in Rural Ghana?

)i*+,ond -ingsley .gyei
(/
Ptri*0 1rrison 2w 3d4ovor
2


(. Institute o5 Sttisti*l& So*il nd .*ono,i* )eser*+& 6niversity o5 7+n& 8egon& 7+n
2. Deprt,ent o5 .*ono,i*s& 6niversity o5 7+n& P# 9o: 74 8egon& 7+n
/ .-,il o5 t+e *orresponding ut+or; tsi<uegyei=y,il.*o,

Abstract
>+is pper nly4es t+e e55e*t o5 +ouse+old non-5r, in*o,e on gri*ulturl produ*tivity in rurl 7+n using
ntionwide +ouse+old survey dt. -ey 5etures o5 t+e nlysis re t+e pro<le, o5 endogeneity nd sele*tion <is
w+i*+ re ddressed using t+e 1e*0,n two-step pro*edure. >+e 5irst stge pro<it regression reveled t+t t+e
*oe55i*ients o5 vil<ility o5 tele*o,,uni*tion in5rstru*ture& vil<ility o5 <n0s& vil<ility o5 ,otor<le
rods& 5orest nd svnn+ 4ones re signi5i*nt in e:plining non-5r, in*o,e. >+e se*ond stge #8S
regression s+owed signi5i*ntly negtive reltions+ip <etween non-5r, in*o,e nd per-*pit 5r, in*o,e
given t+e ot+er *ontrol vri<les.
ey!ords: Non-5r, in*o,e& Produ*tivity& 7+n& .ndogeneity nd Pro<it

"# Introduction
>+e notion t+t rurl +ouse+olds derive t+eir liveli+ood only 5ro, gri*ulture is now *+nging. Di55erent studies
+ve suggested t+t rurl +ouse+olds ern signi5i*nt ,ount o5 in*o,e 5ro, non-5r,
(
sour*es (.llis nd
?doe 200%!. )e*ently Di,ov nd Sen (20(0! ssert t+t +ouse+old in*o,e diversi5i*tion +s <e*o,e nor,
in rurl so*ieties nd t+t spe*ili4tion in single *tivity is t+e e:*eption. >+roug+ diversi5i*tion& +ouse+olds
+ve <een <le to generte e:tr in*o,e nd re i,proving t+eir wel5re (.llis nd ?doe 200%@ 9rrett et l.
200(!.
>+e *on*ept o5 non-5r, in*o,e +s generted enor,ous reser*+ interest& 5o*using to gin understnding over
+ow nd w+y +ouse+olds in rurl res diversi5y t+eir in*o,e port5olio. )eser*+ e55orts +ve *on*entrted on
Aunti5ying t+e s+re o5 non-5r, in*o,e in totl in*o,e& identi5i*tion o5 5*tors driving +ouse+olds to
diversi5y outside gri*ulture s well s e:,intion o5 eAuity nd 5ood se*urity i,pli*tions. >+eoreti*l
e:plntion provides t+t& +ouse+olds diversi5y due to eit+er pus+ or pull 5*tors (.llis& 2000@ 9rrett et l.&
200(!.
Prti*iption in non-5r, in*o,e *tivities re lso s result o5 pus+ nd pull 5*tors. >+is is <e*use t+e *tul
prti*iption o5 +ouse+olds in non-5r, *tivities depends on t+e in*entive nd *p*ity to prti*ipte nd t+e
o**urren*e o5 entry <rriers (()erdon (''7!. >wo opposite 5or*es will deter,ine t+e +ouse+oldBs ,otive to
diversi5y its in*o,e sour*es. Pus+ 5*tors (or ne*essity! re t+e involuntry nd so,eti,es desperte resons to
diversi5y@ t+ey in*lude in*o,e ris0 ,nge,ent& *oping ,e*+nis,s& di,inis+ing or ti,e-vrying returns to
produ*tive ssets& long-ter, *onstrints or s,oot+ing +ouse+old *onsu,ption (.llis 2000@ 9rrett et l. 200(@
)erdon et l. 200(!. Pull 5*tors on t+e ot+er +nd in*entives t+t ttr*t +ouse+olds to t+e non-5r, se*tor
w+en t+e non-5r, *tivities o55er +ig+er returns *o,pred to 5r,ing. )erdon et l. (200(! suggest t+t poor
+ouse+olds will <e ttr*ted to low-ris0 )url Non-Cr, .,ploy,ent in order to de*rese in*o,e vri<ility&
even t+oug+ t+ey ,ig+t +ve low returns. Delt+ier +ouse+olds will <e less diversi5ied in t+eir in*o,e sour*es
<e*use ris0 version ,otivtion de*lines s welt+ in*reses under per5e*t ,r0et *onditions.
In ,ny developing e*ono,ies& une,ploy,ent nd poverty re ,Eor issues *on5ronting poli*y-,0ers. 3
,Eor sour*e o5 in*o,e 5or ,ost rurl +ouse+olds in developing *ountries is gri*ulture. Despite t+e 5*t t+t t+e
gri*ulturl se*tor in 7+n *ontinues to <e ,ong t+e ,Eor *ontri<utors to t+e 7ross Do,esti* Produ*t (7DP!&
5r,ers in 7+n *ontinue to <e poor. >+e sttus o5 5r,ers *ould <e ttri<uted to t+e resons t+t gri*ulture in
7+n *ontinue to <e rin-5ed& rely on si,ple 5r, tools 5or *ultivtion@ nd ,ost 5r,ers re lrgely unedu*ted
nd t+ere5ore ine55i*ient in pplying new 5r, te*+nologies nd proper llo*tion o5 li,ited 5r, resour*es. >+e
se*tor is lso lrgely un<n0ed nd uninsured <e*use 5inn*il institutions nd insurn*e *o,pnies 5ind t+e
se*tor to <e +ig+ly ris0y due to e:posure to severe droug+ts& <us+ 5ires nd 5lu*tuting output pri*es ,ong
ot+ers. >+ese nd ot+er 5*tors ,0e t+e, unprodu*tive nd t+us giving t+e, very low in*o,e 5ter every
produ*tion seson.
3**ording to 7ordon nd Crig (200(!& it is i,possi<le 5or gri*ulture lone to provide su55i*ient liveli+ood
opportunities nd t+us non-5r, in*o,e ,ig+t lso not <e n option 5or everyone. >+is is <e*use& lt+oug+ rurl

(
3ny sour*e o5 in*o,e not generted t+roug+ gri*ulturl *tivities nd en*o,psses own **ount wor0ers nd wor0ing
proprietors o5 unin*orported enterprises.
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non-5r, in*o,es re i,portnt s n o55-seson& prt-ti,e or +o,e <sed in*o,e supple,ent 5or +ouse+olds
w+ose ,in *tivity is 5r,ing& rurl non-5r, in*o,e in 35ri* tends to <ene5it ,ore disproportiontely t+e
welt+ier +ouse+olds i,plying signi5i*nt entry <rriers nd ,r0et seg,enttion (3d,s nd 1. (''"!.
>+e 78SS" (200F! report indi*tes t+t& t+e nu,<er o5 persons engged in t+e non-5r, se*tor in 7+n ws
<out ".4 ,illion persons nd represents 20 per*ent o5 t+e totl popultion t+t own or operte non-5r,
enterprise in di55erent *p*ities. Despite t+is i,portn*e o5 t+e se*tor in *reting e,ploy,ent nd supporting
t+e liveli+ood o5 5r, +ouse+olds& ,u*+ is not 0nown o5 +ow it 55e*ts gri*ulturl produ*tivity in 7+n. >+is
study t+ere5ore tries to est<lis+ t+e i,p*t o5 +ouse+old non-5r, in*o,e on gri*ulturl produ*tivity in rurl
7+n <y esti,ting t+e e55e*t o5 non-5r, in*o,e on 5r, in*o,e.

$# %iterature Revie!
>+e role plyed <y non-5r, e*ono,i* *tivities to +ouse+old gri*ulturl in*o,e in ,ost developing *ountries
espe*illy su<-S+rn 35ri* is su<stntil. >+e old 5*t t+t t+e rurl se*tors o5 developing e*ono,ies re
purely gri*ulturl is <eginning to *+nge. 3**ording to C+ng nd 9oisvert (2006! t+e relin*e on in*o,e 5ro,
t+e non-5r, sour*es <y 5r, +ouse+olds +s *ontinued to nrrow t+e gp <etween in*o,es o<tined 5ro, 5r,
+ouse+olds nd in*o,es o<tined 5ro, non-5r, +ouse+olds.
3**ording to 7ordon nd Crig (200(!& t+e per*entge o5 t+e poor in rurl res e:*eeds t+e <ility o5
gri*ulture to provide sustin<le Eo< opportunities. Curt+er,ore& w+iles t+ere is t+e possi<ility o5 ,igrting out
o5 t+ese res to t+e ur<n res& it is unli0ely t+t t+e ur<n res re <le to provide enoug+ Eo< opportunities
5or people w+o ,ove out <e*use t+ey re not <le to ,0e living in t+e 5r,ing or gri*ulturl se*tor
(?rslnd& et l. 2000!. 3**ording to 7ordon nd Crig (200(!& non-5r, e*ono,i* *tivities ,y t0e up e:tr
l<our in rurl res& id 5r, +ouse+olds spred t+eir ris0s& o55er <etter re,unertive Eo<s to supple,ent 5r,
in*o,e& provide in*o,e possi<ility in ti,es o5 o55-5r, sesons nd o55er lterntive ,ens to *ope w+en
5r,ing 5ils.
1gg<lde& 14ell& nd )erdon (200"! 5ound t+t lo*l non-5r, in*o,e *onstituted <etween %0 to 4" per*ent
o5 rurl +ouse+old in*o,es in developing *ountries. )erdon et l. ((''7! esti,ted it t 42 per*ent 5or su<-
S+rn 35ri* nd %2 per*ent 5or 3si nd 40 per*ent 5or 8tin 3,eri*. .llis ((''F! gives +ig+er nu,<ers
5ro, *se studies in su<-S+rn 35ri* in rnge o5 %0 to "0 per*ent.
Cr,Gnon-5r, lin0ges re ,ostly used to study t+e reltions+ip <etween t+e 5r, nd non-5r, se*tors (see
)erdon et l.& (''7!. 8in0ges re 5inn*il trns*tions <etween t+e two se*tors w+i*+ o**ur over ti,e. >+ere
is distin*tion <etween produ*tion nd e:penditure lin0ges. Produ*tion lin0ges *n <e 5urt+er divided into
upwrds nd downwrds produ*tion lin0ges. 6pwrd produ*tion lin0ges re 5ound in t+e non-5r, se*tor
w+en gri*ulturl output is used s input
(
. (see Dolden+nn& 2000!. 3ny growt+ t+t o**urs in 5r,ing
sti,ultes gri*ulturl produ*tivity nd +en*e t+e *p*ity to supply inputs nd servi*es to t+e non-5r, se*tor.
Downwrd produ*tion lin0ges on t+e ot+er +nd re5er to non-5r, *tivities t+t provide inputs to gri*ulturl
produ*tion& su*+ s gro*+e,i*ls& wter pu,ps or 5ertili4ers. >+e non-5r, se*tor is en*ourged to invest in
supply *p*ity o5 gro-pro*essing nd distri<ution servi*es ()erdon et l.& (''7@ Dvies et l.& 200%!. D+et+er
t+e produ*tion lin0ges will <e upwrd or downwrd depends on t+e *+r*teristi*s o5 t+e lo*l gri*ulture
()erdon et l.& (''7!.
.:penditure lin0ges o**ur w+en +ouse+olds 5inn*e spending in one se*tor <y t+e ,oney erned 5ro, not+er
se*tor. Cr,ers *n 5or e:,ple pur*+se non-5r, produ*ts wit+ in*o,e generted 5ro, 5r, *tivities. #n t+e
*ontrry& people t+t +ve **ess to non-5r, *tivities <uy 5ood nd ot+er gri*ulturl output wit+ t+e in*o,e
derived 5ro, t+t non-5r, *tivity. D+en t+ese e:penditures re relted to +ouse+old *onsu,ption&
*onsu,ption lin0ges re est<lis+ed. Cr, in*o,e rises or in*reses t+e de,nd 5or <si* goods nd servi*es
nd results in diversi5i*tion o5 *onsu,ption (Dolden+nn& 2000!.
Invest,ent lin0ges in*lude e:penditures used to 5inn*e non-5r, or 5r, *tivities& w+i*+ re ,inly
i,portnt wit+in +ouse+olds. )eturns 5ro, non-5r, *tivities *n <e used to ,0e invest,ents in 5r,
*tivities nd t+ere<y en+n*e gri*ulturl produ*tivity (Dvies et l.& 200%!. >+e pro5it<ility o5 t+ese
e:penditure lin0ges depends on t+e level nd distri<ution o5 t+e in*o,e. Poor +ouse+olds will spend ,ore on
lo*l goods nd servi*es 5ro, t+e non-5r, *tivities& w+ile ri*+er +ouse+olds re ,ore li0ely to invest in goods
5ro, t+e ,odern nd ur<n ,nu5*turing se*tors or in i,ports.
>+e stru*ture o5 t+e gri*ulturl se*tor nd t+e type o5 growt+ deter,ines t+e type o5 lin0ge t+t will o**ur.
Dvies et l. (200%! illustrtes t+is wit+ severl e:,ples. I5 signi5i*nt e:ternl inputs re needed 5or
gri*ulturl produ*tion& it is e:pe*ted t+t <*0wrd produ*tion lin0ges will o**ur. 3gri*ulturl output t+t
reAuires pro*essing <e5ore selling indu*es 5orwrd produ*tion lin0ges. I5 growt+ in t+e gri*ulturl se*tor is
*p<le o5 indu*ing rurl in*o,e growt+& *onsu,ption nd potentil invest,ents will <e en+n*ed <y

(
)w gri*ulturl outputs re pro*essed nd distri<uted <y non-5r, enterprises
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e:penditure lin0ges.
.llis ((''F! 5inds t+t possi<le dverse (*o,petition 5or l<our nd *redit! nd <ene5i*il (reinvest,ents nd
insurn*e! i,p*ts o5 non-5r, in*o,e on +ouse+old level re suggested in t+e literture. >+e net i,p*t o5 non-
5r, *tivities is +owever +ig+ly spe*i5i* in ti,e nd sp*e.
>+e non-5r, in*o,e 55e*ts gri*ulturl produ*tion in dire*t nd indire*t wy w+en *redit nd liAuidity
,r0et i,per5e*tions o**ur. >+e dire*t e55e*t o5 non-5r, in*o,e is t+e rel:tion o5 +ouse+old <udget
*onstrints nd t+e in*rese o5 t+e pur*+se o5 nor,l goods. >+e indire*t e55e*ts o5 non-5r, in*o,e re ,ore
*o,ple:; non-5r, *tivities provide +ouse+olds *pitl& se*urity nd liAuidity to invest in te*+nology or 5r,
inputs.
Co,peting lin0ges o**ur i5 +ouse+oldsB de*isions <out non-5r, nd 5r, *tivities re ,de Eointly nd
+ouse+olds 5*e li,ited resour*es nd inputs su*+ s *pitl nd l<our ()erdon et l. (''4!. Prti*iption in
non-5r, *tivities reAuires rello*tion o5 t+ose li,ited resour*es nd t+is results in n inevit<le wit+drwl o5
*riti*l resour*es 5ro, t+e 5r,. I5 non-5r, *tivities +ve +ig+er return nd gri*ulturl invest,ents re ris0y&
invest,ents in lnd *onservtion nd te*+nology *ould <e i,peded ()erdon et l. 200(!. 3**ording to )erdon
et l. (200(!& t+e +ig+ produ*tivity nd +ig+er returns o5 non-5r, *tivities led to *on*entrtion o5 resour*es on
rurl non-5r, *tivities. 3s *onseAuen*e& prti*iption <y +ouse+olds in non-5r, *tivities *n +,per t+eir
own 5r, produ*tivity (.llis nd Cree,n 2004!. >+is p+eno,enon de*reses gri*ulturl produ*tion nd +en*e
5r, in*o,e will de*rese nd t+ere<y +,pers gri*ulturl *o,,er*ili4tion or ,oderni4tion ()u<en nd
vn den 9erg 200(!. >+e ,ount o5 non-5r, *tivities per5or,ed nd t+e i,portn*e o5 e*+ *tivity depends
on t+e reltive returns to 5r, versus non-5r, *tivities nd t+eir input reAuire,ents.
In su,& severl 5*tors pper to <e involved in de*isions <y rurl +ouse+olds to prti*ipte in rurl non-5r,
e*ono,i* *tivities. So,e ,ig+t <e ttr*ted <y t+e in*entives o55ered nd l<our vil<ility w+eres ot+ers
,ig+t <e pus+ed into t+e non-5r, se*tor due to l*0 o5 opportunities on t+e 5r,. 3lso t+e *+r*teristi*s o5
5r, +ouse+olds lso *ontri<ute to t+e prti*iption in non-5r, e*ono,i* *tivity. Involve,ent in non-5r,
*tivities& s liveli+ood strtegy ,ong poor rurl +ouse+olds& ply vitl role in pro,oting growt+ nd
wel5re nd o55ers pt+wy out o5 poverty i5 non-5r, opportunities *n <e sei4ed <y t+e rurl poor. It ws
reveled in t+e literture t+t non-5r, in*o,e *ould eit+er in*rese gri*ulturl produ*tivity or de*rese it or
non-5r, in*o,e *ould 55e*t gri*ulturl produ*tivity eit+er positively or negtively. Positively in t+e sense t+t
non-5r, in*o,e *ould *ontri<ute to invest,ent in t+e 5r, se*tor to in*rese produ*tivity nd lso& negtively
in t+e sense t+t in*o,e 5ro, t+e 5r, se*tor *ould <e invested in t+e non-5r, se*tor ,ore t+n it would <e
invested <*0 into gri*ulture.

&# 'ata
>+e study used dt 5ro, t+e 7+n 8iving Stndrds Survey (78SS"! ntionlly representtive ,ultipurpose
+ouse+old survey *ondu*ted in 200"G2006 <y t+e 7+n Sttisti*l Servi*e. >+e survey *ptured *o,pre+ensive
in5or,tion relted to +ouse+old gri*ulturl nd non-gri*ulturl *tivities s well s in*o,e generted. In
ddition to t+t& issues relted to privte in*o,e trns5er or re,ittn*es were deAutely *overed. Stru*ture o5
dt *olle*tion instru,ent (Auestionnire! suggests t+t 0ey vri<les 5or t+e proposed study were deAutely
*overed.
>+e 78SS" is ntionlly representtive s,ple o5 F6F7 +ouse+olds in "F0 enu,ertion res (.3!& *ontining
%7(2F +ouse+old ,e,<ers. #5 t+e F6F7 +ouse+olds surveyed& "06' were in rurl res. >+is study 5o*uses on
5r, +ouse+olds w+o owned or operted so,e 5r, lnd nd lso engge in rurl non-5r, *tivities o5 w+i*+
t+ere were totl o5 40"6 in t+e survey 5ter t+e ut+orBs own *o,puttion. >+e +ouse+olds *onsidered in t+e
dtset undert0e <ot+ 5r, nd non-5r, in*o,e *tivities.

(# )heoretical Frame!or*
>+e ,odel e,ployed in t+is study is essentilly t+e one suggested <y 1u55,n ((''(!& w+ere 5r, +ouse+olds
llo*te t+eir ti,e to individul *tivities in*luding non-5r, wor0. It is <sed on t+e gri*ulturl +ouse+old
,odel t+t *o,<ines gri*ulturl produ*tion& t+e +ouse+oldsB *onsu,ption& nd non-5r, wor0 de*ision <y t+e
+ouse+old in single 5r,ewor0. >+e study *onsiders +ouse+old wit+ two *tivities& t+e +ouse+old 5r, wor0
nd non-5r, wor0. 3 5r, +ouse+old is ssu,ed to ,:i,i4e utility 5un*tion de5ined over *onsu,ption o5
goods& Q nd leisure& H & i.e.&
( & !. U U Q H =
6tility is ,:i,i4ed su<Ee*t to ti,e& <udget& produ*tion& nd non-negtivity *onstrints. >+e ti,e *onstrint is;
( 2
T L L H = + +
D+ere T is totl ti,e endow,ent@
(
L nd
2
L re respe*tively ti,e llo*ted to 5r, wor0@ nd non-5r, wor0
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nd H is leisure s de5ined <ove.
>+e <udget *onstrint on +ouse+old *s+ in*o,e *n <e e:pressed s;
( ( ( ( 2 2
PQ p y wL w L R = + + ((!
D+ere P is t+e pri*e 5or t+e *onsu,ption good pur*+sed in t+e ,r0et@
(
w nd
2
w denote returns to l<our
5ro, 5r, wor0 nd non-5r, wor0 respe*tively@
(
y nd
(
p re nnul Auntity o5 5r, output produ*ed nd
sold nd pri*e 5or 5r, output respe*tively@ R represent non-l<our in*o,e.
>+e 5irst order *ondition 5or opti,l ti,e llo*tion 5or 5r, wor0& non-5r, wor0 nd leisure is given s;
0
i
i
U U U
w
L Q L


= = .
>+is 5irst order *ondition *n <e rerrnged to o<tin t+e returns to l<our 5ro, 5r, wor0 nd non-5r, wor0;
( G !
( G !
i
U L
w
U Q

=

.
D+en 5r, +ouse+olds llo*te t+eir ti,e to t+e t+ree *tivities& t+e l<our supply 5un*tions 5or 5r, wor0 nd
non-5r, wor0 *n <e derived s
( ( ( 2 ( 2
( & & & @ ! L L w w p p Z = (2!
2 2 ( 2 ( 2
( & & & & @ ! L L w w p p R Z = (%!
3s noted <y 1u55,n ((''(!& positive nu,<er o5 non-5r, +ours will <e o<served 5or +ouse+old i & i5 t+e
potentil ,r0et wge ( !
m
i
w is greter t+n t+e reservtion wge ( !.
r
i
w
>+us& (
i
L = i5
m r
i i
w w > nd 0
i
L = i5
m r
i i
w w
1owever& t+ese di55erentil wges re not o<serv<le. D+t is o<served is t+e de*ision to ern& or not to ern
non-5r, in*o,e. >+is de*ision *n <e spe*i5ied s n inde: 5un*tion& wit+ uno<served vri<le&
/ H
i i i
L Z = +
(4!


(
i
L =

i5
/
0
i
L >
0
i
L = i5
/
0
i
L
D+ere
H
i
Z denotes ve*tor o5 vri<les su*+ s +ouse+old nd lo*tion *+r*teristi*s t+t in5luen*e t+e
+ouse+oldBs reservtion nd non-5r, in*o,e@
i
is t+e rndo, distur<n*e ter,.
>o nly4e t+e i,p*t o5 non-5r, in*o,e on 5r, in*o,e& we strt 5ro, t+e liner 5un*tion
H
i i i i i i i
Y X L = + + + ("!
w+ere
i
Y is +ouse+old 5r, in*o,e& L is vri<le representing one& i5 t+e +ouse+old erns non-5r, in*o,e
nd 4ero ot+erwise@
H
i
X & is ve*tor o5 personl nd +ouse+old *+r*teristi*s nd ssets& nd lo*tion
*+r*teristi*s&
i
is ve*tor o5 un0nown pr,eters& nd
i
is rndo, error ter,.

+# ,m-irical ,stimation .ethod
>+e i,p*t o5 non-5r, in*o,e prti*iption on gri*ulturl out*o,e *n <e esti,ted <y using per-*pit
in*o,e 5ro, gri*ulturl +ouse+olds engged in gri*ulturl produ*tion s pro:y 5or gri*ulturl produ*tivity
w+ile *ontrolling 5or set o5 ot+er 5*tors. >+is ,et+odology ssu,es t+t t+e syste,ti* di55eren*es <etween
+ouse+olds engged in gri*ulturl produ*tion is *ptured t+roug+ t+e in*lusion o5 set o5 o<serv<le
*+r*teristi*s t t+e +ouse+old nd *o,,unity levels.
1e*0,n (('7'! two-step pro*edure ws spe*i5ied 5or esti,tion. 3 de*ision ,odel will <e spe*i5ied to esti,te
t+e prti*iption de*ision o5 5r, +ouse+olds in non-5r, wor0. >+is will <e t+e 5irst stge regression. >+e
se*ond stge will <e to spe*i5y ,odel t+t will *pture t+e i,p*t o5 non-5r, in*o,e on per-*pit 5r,
in*o,e.
Pro<it regression ,et+od is used 5or t+e sele*tion eAution. Cor t+e pro<<ility o5 <eing non-5r, in*o,e
re*ipient +ouse+old 5or o<servtioni @ t+us& (
i
y = i5 +ouse+old re*eives non-5r, in*o,e@ 0
i
y = i5 not. De
esti,te t+e pro<<ility t+t t+e event o**urs s 5un*tion o5 t+e e:plntory
H
i
Z . >+e pro<it ,odel uses t+e
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nor,l *u,ultive density 5un*tion (*.d.5.! 5or C;
H
Pr ( (! ( !
i i
ob y Z = = . (6!
D+ere Istndrd nor,l *u,ultive density 5un*tion@ is t+e ve*tor o5 un0nown pr,eters to <e esti,ted.

3s *u,ultive density 5un*tion& it +s t+e desired property o5 lwys 5lling <etween 0 nd (. Collowing t+e
inde: 5un*tion nd writing it out e:pli*itly;
H
H
( ! ( !
i
Z
i
Z d

= . (7!
>+e study t+ere5ore esti,te using t+e ,:i,u, li0eli+ood.

>+e e,piri*l ,odel 5or t+e pro<it ,odel 5or re*ipient o5 non-5r, in*o,e re*ipientsB +ouse+olds to <e
esti,ted is spe*i5ied s 5ollows;
0 ( 2 % E 4 " 6 7 F '
(0 (( (2
J ge+dJ gesAJ edu*+d J ++si4eJ *+J telJ ,0tJ <n0J
i
i i
y tr
ptrans elec ezones


=
+ + + +
(F!
D+ere ] = pri,ry& KSS nd se*ondryGtertiry& ogcJ is ge o5 +ouse+old +ed@ ogcJ
2
represents t+e sAured
ge o5 +ouse+old +ed@ cJucJ depi*ts edu*tion levels o5 +ouse+old +ed@ sizc represent t+e +ouse+old si4e@
ach is **ess to *redit@ tel is vil<ility o5 tele*o,,uni*tion 5*ilities@ mkt is vil<ility o5 ,r0et& bnk is
vil<ility o5 <n0@ tr is **ess to ,otor<le rod& ptrons is vil<ility o5 pu<li* trnsporttion& elec is
vil<ility o5 ele*tri*ity&
i
ezones represent e*ologi*l 4ones ( i I 5orest& svnn+ nd *ostl! nd 5inlly& e

is
t+e rndo, error ter,.
In using eAution (F!& s,ple sele*tion issues ,y rise. S,ple sele*tion <is t+ere5ore re5ers to pro<le,s
w+ere t+e dependent vri<le is only o<served 5or restri*ted& non-rndo, s,ple. >+t is& sele*tion into non-
5r, prti*iption ,y not <e rndo, nd s su*+ t+ere *ould <e sele*tion <is nd +en*e t+e inverse ,ills rtio
would <e esti,ted to del wit+ t+is potentil pro<le,. >+us eAution (F! is used to generte t+is sele*tivity ter,
lso 0nown s t+e Inverse ?ills rtio (8,<d!& w+i*+ is dded to t+e se*ond stge out*o,e eAution or per-
*pit 5r, in*o,e eAution in eAution ('! <elow. >+is will provide eviden*e 5or t+e presen*e o5 sel5-sele*tion
nd +en*e Eusti5y t+e use o5 1e*0,nBs two-step pro*edure.
5.1. Solving the Problem of Potential Endogeneity
.ndogeneity re5ers to t+e 5*t t+t n independent vri<le in*luded in t+e ,odel is potentilly *+oi*e vri<le&
*orrelted wit+ uno<serv<les relegted to t+e error ter,. >+e dependent vri<le& +owever& is o<served 5or ll
o<servtions in t+e dt. In nly4ing t+e e55e*t o5 non-5r, in*o,e on 5r, in*o,e& t+ere is t+e possi<ility o5
t+e pro<le, o5 endogeneity& in t+t non-5r, in*o,e *ould <e invested into gri*ulturl produ*tion nd 5r,
in*o,e *ould lso <e invested into non-5r, e*ono,i* *tivities. In ot+er words& t+ere *ould <e <i-dire*tionl
e55e*t <etween t+e two. In order to solve t+is pro<le, o5 potentil endogeneity& eAution ('! <elow ws esti,ted
w+ere y ws treted s *ontinuous vri<le to get t+e predi*ted vlues o5 non-5r, in*o,e w+i*+ ws t+en
plu*0ed into t+e sele*tion eAution& t+us per-*pit in*o,e eAution 5or t+e se*ond stge #8S regression.
0 ( 2 % E 4 " 6 7 F '
(0 (( (2
J ge+dJ gesAJ edu*+d J ++si4eJ *+J telJ ,0tJ <n0J
i i
y tr
ptrans elec ezones


=
+ + + +
('!
5.2. Heckman Sample Selection Estimation
>+e i,p*t o5 non-5r, in*o,e on 5r, in*o,e is esti,ted wit+in liner regression 5r,ewor0 <y pl*ing t+e
predi*ted vlues 5or +ouse+olds t+t re*eive non-5r, in*o,e s prt o5 t+e independent vri<les. >+is will <e
t+e se*ond stge. >+is liner regression eAution is s+own <elow in eAution ((0!;
0 ( 2 % 4 " 6
7 F
i i j
i
pay edchd hhsize !size "!in" !bo ezones
prdn!e in"mills


= + + + + + +
+ + +
((0!
D+ere i = +ouse+old@
i
pay is +ouse+old per-*pit gri*ulturl in*o,e&
i
edchd is edu*tionl levels&
hhsize represents t+e +ouse+old si4e& !size is 5r, si4e& "!in" vlue o5 5r, invest,ent& !bo depi*ts
+ouse+old +ed is ,e,<er o5 5r,er-<sed orgni4tion& prdn!e t+us is t+e predi*ted vlue o5 non-5r,
in*o,e w+i*+ ws *l*ulted 5ro, eAution ('! <ove w+en y ws treted s *ontinuous vri<le&
i
re
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*oe55i*ients o5 t+e pr,eters to <e esti,ted& in"mills is t+e inverse ,ills rtio (I?)! generted 5ter t+e 5irst
stge pro<it regression nd 5inlly& is rndo, distur<n*e ter, ssu,ed to <e nor,lly distri<uted. >+e
i,p*t o5 non-5r, in*o,e on +ouse+old per-*pit gri*ulturl in*o,e is ,esured <y t+e esti,te o5 t+e
pr,eter
'
. >+e inverse ,ills rtio is sel5-sele*tion w+i*+ is ter, t+t e:plins t+e 5*t t+t individuls sel5-
sele*t (,0e t+eir own *+oi*e! into *ertin progr,,es or <e+viours w+i*+ ,0e prti*iption in su*+
progr,,es or <e+viours not rndo,ly deter,ined (Dooldridge& 200"!. Dooldridge (200"! 5urt+er e:plined
t+t t+e ter, is ,ostly used w+en <inry indi*tor o5 prti*iption ,ig+t <e syste,ti*lly *orrelted wit+
uno<served 5*tors. >+us& t+is ,0es t+e sel5-sele*tion pro<le, not+er wy n e:plntory vri<le *n lso <e
des*ri<ed s endogenous.
In t+is *se& 5r,er sel5-sele*ts w+et+er to <e non-5r, in*o,e re*ipient +ouse+old or not depending on t+e
per*eived ,rginl <ene5it. 9ut 5r,er w+o ,0es *+oi*e to <e non-5r, in*o,e re*ipient +ouse+old will
li0ely +ve reltively +ig+ in*o,e even i5 +e does not prti*ipte. Sin*e y *nnot <e treted s n e:ogenous
vri<le& esti,ting eAution ((0! <y t+e #rdinry 8est SAures (#8S! ,et+od will yield in*onsistent result nd
<ised esti,tes.
>o o<tin *onsistent result& t+e pro*ess o5 *orre*ting 5or sel5-sele*tion <is using t+e 1e*0,n S,ple
Sele*tion ?odel (lso 0nown s t+e 1e*0,n >wo-step pro*edure! proposed <y 1e*0,n (('7'! nd ?ddl
(('F%! is 5ollowed. 3n eAution e:plining t+e s,ple sele*tion is in*luded into t+e eAution to <e esti,ted.
>+e eAution in t+is *se is t+e prti*iption eAution represented <y eAution (((! <elow s lredy e:plined
<ove.
>+us@
/ H
&
i i i
y Z = +

/
( y =

i!

/
0& y >

0

otherwise
(((!
D+ere
/
y represent t+e de*ision to prti*ipte in non-5r, in*o,e *tivities@
H
i
Z is ve*tor o5 +ouse+old nd
*o,,unity level *+r*teristi*s t0en to in5luen*e t+e pro<<ility t+t +ouse+old prti*ipte in t+e non-5r,
se*tor or si,ply ve*tor o5 e:plntory vri<les@ is t+e ve*tor o5 un0nown pr,eters to <e esti,ted nd@
is n error ter, ssu,ed to <e distri<uted s
2
(0& ! .

.Aution (((! is t+e pro<it ,odel& in w+i*+ we 5irst& esti,te t+e prti*iption eAul to ( i5 t+e +ouse+old
re*eives non-5r, in*o,e nd 0 ot+erwise& is regressed on t+e independent vri<les. >+is spe*i5i*tion in
eAution (((! trets non-5r, in*o,e s n e:ogenous vri<le on t+e pre,ise t+t non-5r, in*o,e re*ipient
+ouse+olds in*rese t+eir 5r, in*o,e or i,prove t+eir 5ood se*urity sttus.

/# ,m-irical Results and 'iscussion
>+is se*tion provides n interprettion o5 t+e regression results 5ro, t+e pro<it nd t+e ordinry lest sAures
(#8S! regression ,odels 5or <ot+ non-5r, in*o,e nd per-*pit gri*ulturl in*o,e respe*tively. >+e pro<it
regression ,odel is esti,ted to deter,ine t+e pro<<ility o5 +ouse+old <eing non-5r, in*o,e re*ipient one&
w+ile t+e #8S regression ,odel is esti,ted to ssess t+e i,p*t o5 non-5r, in*o,e on gri*ulturl in*o,e.
><le % nd ><le 4 present t+e results 5ro, t+e pro<it esti,tion nd t+e 1e*0,n sele*tion ,odel 5or non-
5r, in*o,e re*ipients nd per-*pit gri*ulturl produ*tivity respe*tively.
In*lusion o5 ll e:ogenous vri<les in <ot+ t+e de*ision (redu*ed 5or,! nd gri*ulturl in*o,e eAution will
result in ,ulti-*ollinerity pro<le,s in t+e se*ond stge o5 t+e esti,tion pro*edure (N0osteen nd Li,,er
('F0!. >+us& **ess to *redit& **ess to <n0& **ess to tele*o,,uni*tion& vil<ility o5 ele*tri*ity& **ess to
,otor<le rods nd vil<ility o5 pu<li* trnsportion re in*luded s regressors in t+e non-5r, in*o,e
de*ision eAution& <ut e:*luded 5ro, t+e gri*ulturl in*o,e eAution.
6.1. Estimates of the Probit Model
Cro, t+e esti,tions in ><le %& t+e pro<<ility o5 <eing non-5r, in*o,e re*ipient +ouse+old is signi5i*ntly
dependent on t+e vil<ility o5 tele*o,,uni*tion in5rstru*ture& vil<ility o5 <n0 nd t+e vil<ility o5
,otor<le rods. In ddition& t+e negtive *oe55i*ient o5 vil<ility o5 tele*o,,uni*tion in5rstru*ture vri<le
indi*tes t+t t+e pro<<ility o5 engging in non-5r, in*o,e de*reses wit+ tele*o,,uni*tion **ess. In t+e
s,e vein& t+e s,e *n <e sid <out t+e vil<ility o5 <n0 sin*e it is lso signi5i*ntly negtive. .ven t+oug+
t+is is *ounter intuitive& it *ould lso ,en t+t rurl +ouse+olds *on*entrte ,u*+ o5 t+eir e55orts on t+e 5r,
sin*e t+ere re now opportunities 5or t+e, to get esy **ess to t+eir *usto,ers in t+e ur<n *entres to pur*+se
t+eir produ*e.
>+e <n0s *ould lso s+ow interest in ,0ing *redit vil<le to t+e 5r, +ouse+olds rt+er t+n t+e non-5r,
se*tor nd +en*e t+e negtive reltions+ip wit+ t+e non-5r, se*tor. >+is *ontrsts t+e 5indings o5 9<tunde nd
Mi, (20(0! t+t +ouse+old ,e,<ers wit+ little or no edu*tion nd no **ess to in5rstru*ture su*+ s
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*o,,uni*tion& rods nd ,r0ets et* were *onstrined in t+eir <ility to prti*ipte in well-pying non-5r,
e*ono,i* *tivity.
?otor<le rod du,,y s+ows t+t t+e pro<<ility o5 prti*iption in t+e non-5r, se*tor in*reses wit+ t+e
vil<ility o5 ,otor<le rods. )ods re seen s signi5i*nt gents o5 develop,ent nd +en*e nyw+ere t+t
rods re *onstru*ted& <usinesses or non-5r, se*tor *tivities strive.
Dit+ regrds to t+e e*ologi*l 4ones& t+e re5eren*e *tegory is *ostl 4one. >+e *oe55i*ients o5 5orest 4one nd
svnn+ 4one du,,ies re signi5i*ntly positive. It is wort+ noting 5ro, t+e result t+t; in *o,prison wit+
5r, +ouse+olds in t+e *ostl 4one& t+e pro<<ility o5 5r, +ouse+olds to <e in t+e 5orest 4one re e:pe*ted to
redu*e non-5r, in*o,e <y 71N0.(6 w+iles 5r, +ouse+olds in t+e svnn+ 4one re e:pe*ted to redu*e non-
5r, in*o,e <y 71N0.22. >+is result does not *on5ir, t+e ssertion <y New,n nd CngrE+ (2000! t+t
5r, +ouse+olds in svnn+ 4one would prti*ipte ,ore in non-5r, in*o,e *tivities. >+eir 5indings s+ow
t+t 5r, +ouse+olds in 5orest nd *ostl 4ones would prti*ipte ,ore in non-5r, *tivities. ?enw+ile t+e
results <ove lso s+ow t+t 5r, +ouse+olds in t+e 5orest 4one would lso <e less li0ely to prti*ipte in non-
5r, in*o,e *tivities.
>+e 5irst stge o5 1e*0,nBs two stge ,odel is non-5r, in*o,e prti*iption eAution t+t *ptures t+e 5*tors
deter,ining prti*iption <y e,ploying <inry pro<it eAution s s+own in ><le % <ove. >+is eAution& t+t
is& t+e prti*iption eAution ws used to generte sele*tivity ter, 0nown s t+e Inverse ?i lls )tio (8,<d!&
w+i*+ is dded to t+e se*ond stge out*o,e eAution or per-*pit 5r, in*o,e s s+own in ><le 4 <elow.
6.2. Effect of on!farm "ncome on #gric$lt$ral Prod$ctivity
>+e results o5 t+e regression on t+e e55e*t o5 non-5r, in*o,e on gri*ulturl produ*tivity re *ontined in ><le
4# 8iterture revels t+t in*o,e generted 5ro, non-5r, sour*es *ould eit+er in*rese gri*ulturl in*o,e or
redu*e it. It is e:pe*ted 5ro, t+is study t+t in*o,e generted 5ro, non-5r, re*ipient +ouse+olds would redu*e
gri*ulturl in*o,e levels o5 5r, +ouse+olds w+o prti*ipte in non-5r, e*ono,i* *tivities. >+is is <e*use&
wo,en do,inte t+e petty trde industry in 7+n **ording to t+e 78SS" report. Sin*e ,ost wo,en *nnot
sustin t+eir 5r,s& t+ey eventully leve t+t se*tor 5or non-5r, *tivities nd +en*e in*resing t+e in*o,e
**ruing to t+is se*tor t t+e negle*t o5 gri*ulture. ?enw+ile& t+is is not to sy t+t ,en re not into t+e petty
trde industry. In solving t+e pro<le, o5 endogeneity o5 non-5r, in*o,e& n #8S regression ws esti,ted nd
t+e predi*ted vlues were e,ployed in t+e 1e*0,n sele*tion ,odel s n e:ogenous vri<le. >+e result o5 t+is
regression is s+own in ><le 3( o5 t+e 3ppendi:.
>+e results in ><le 4 s+ow t+t per-*pit non-5r, in*o,e is signi5i*ntly negtive t (0 per*ent level o5
signi5i*n*e. >+is indi*tes t+t n in*rese in per-*pit non-5r, in*o,e <y 71N( redu*es per-*pit 5r,
in*o,e <y 71N0.02. >+is 5inding lends support to t+e rgu,ent <y 7odwin nd ?is+r (2004! t+t ,u*+
involve,ent in non-5r, wor0 de*resed e55i*ien*y on t+e 5r, nd +en*e redu*ed gri*ulturl produ*tivity.
Si,ilrly& t+is result *on5ir,s t+e 5indings <y P5ei55er& 8ope4-Celd,n nd >ylor (200F! w+o studied
e,piri*lly t+e e55e*t o5 non-5r, in*o,e on so,e *tivities in gri*ulturl produ*tion in ?e:i*o. >+eir results
s+ow t+t non-5r, in*o,e +s signi5i*ntly negtive e55e*t on gri*ulturl output nd lso redu*ed t+e supply
o5 5,ily l<our to t+e 5r,.
>+e se*ond stge o5 1e*0,nHs pro*edure lso re5erred to s t+e out*o,e or sele*tion eAution uses #rdinry
8est SAures (#8S! 5or est<lis+ing t+e e55e*t o5 non-5r, in*o,e on +ouse+old per-*pit 5r, in*o,e. >+e
*oe55i*ient o5 t+e sele*tivity vri<le is sttisti*lly signi5i*nt nd negtive. >+is 5inding *lls 5or *ouple o5
*o,,ents. Cirst o5 ll& t+e sttisti*l signi5i*n*e o5 t+e *oe55i*ient lends support to our *+oi*e o5 t+e 1e*0,n
sele*tivity-dEusted ,odel. Se*ondly& t+e negtive sign o5 t+e *oe55i*ient suggests t+e presen*e o5 uno<served
vri<le(s! w+i*+ e:ert *ontrsting e55e*ts on non-5r, in*o,e prti*iption de*ision nd 5r, in*o,e erned.
>+e esti,ted *oe55i*ient 5or ge o5 t+e +ouse+old +ed is signi5i*nt in e:plining w+y it is n i,portnt
deter,innt in t+e 5r, se*tor. It is signi5i*nt t (0 per*ent level nd +s positive e55e*t. >+e positive
*oe55i*ient 5or +ed o5 +ouse+old i,plies t+t 5or e*+ dditionl in*rese in t+e ge o5 t+e +ouse+old +ed per-
*pit 5r, in*o,e in*reses <y 71N0.0(. >+e negtive nd signi5i*nt *oe55i*ient o5 ge sAured i,plies t+t
t+ere is nonliner reltions+ip <etween ge nd per-*pit 5r, in*o,e nd t+is reltions+ip is *onve:. >+is
i,plies t+t t younger ges 5r, +ouse+old +eds leve t+e non-5r, se*tor nd& s t+ey in*rese in ge& t+ey
retire 5ro, t+e 5r, wor0 nd prti*ipte in t+e non-5r, wor0 <e*use t+ey re e:pe*ted to <e we0 nd 5or t+t
,tter *nnot do +rd wor0. >+is result is in*onsistent wit+ previous studies (e.g. Su,ner ('F2@ 3<duli nd
Delgdo ('''@ ?n nd Sdiy& 200'!. >+ey 5ound t+t s young 5r, +ouse+old ,e,<ers in*rese in ge& t+ey
tend to prti*ipte ,ore in o55-5r, wor0 <ut t older ges& t+ey wor0 ,ore on-5r,.
Dit+ regrds to t+e edu*tionl vri<les& no edu*tion ws used s t+e re5eren*e *tegory. >+e results s+ow t+t
*o,pred to no edu*tion& per-*pit 5r, in*o,e redu*es <y 71N0.(2 5or ll 5r, +ouse+old +eds wit+
se*ondry edu*tion. >+is ,ens t+t 5r, +ouse+old +eds wit+ no edu*tion would in*rese per-*pit 5r,
in*o,e *o,pred to 5r, +ouse+old +ed wit+ se*ondry edu*tion. >+ere is negtive e55e*t on per-*pit
5r, in*o,e 5or e*+ 5r, +ouse+old +ed w+o *Auire se*ondry edu*tion. >+is *n <e e:plined t+t s
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+ouse+olds ttin se*ondry edu*tion& it slig+tly in*reses t+eir *+n*es o5 getting non-5r, in*o,e wor0 nd
+en*e redu*e t+eir involve,ent in 5r, wor0. >+is is *onsistent wit+ t+e wor0 o5 8nEouw (('''! w+o e:plin
t+t people re e,ployed in +ig+ pying se*tors o5 t+e e*ono,y s t+eir edu*tion levels rise nd t+is will +ve
gret nd positive i,p*t on t+eir in*o,e nd +s n eventul negtive e55e*t on gri*ulturl produ*tivity. In
relted develop,ent& t+ere is *onsistent nd *ontrsting view <y Isl, ((''7! w+o suggests t+t pri,ry
edu*tion i,prove t+e produ*tivity o5 l<our w+iles se*ondry edu*tion sti,ultes entrepreneuril *tivity
t+ere<y rising gri*ulturl in*o,e levels o5 5r, +ouse+olds.
>+e +ouse+old si4e +s negtive i,p*t on per-*pit gri*ulturl in*o,e sin*e t+e p-vlue o5 +ouse+old si4e is
less t+n ( per*ent. >+e result s+ows t+t n in*rese in t+e +ouse+old si4e <y ( person *uses per-*pit
gri*ulturl in*o,e to redu*e <y 71N0.(%. >+is reveltion *ould <e ttri<uted to t+e 5*t t+t lrger +ouse+olds
*ould <e ,de up o5 t+e elderly nd ,inors w+o will not <e very *tive to prti*ipte in 5r, wor0 nd +en*e
lower vlues o5 gri*ulturl output per *pit. In not+er vein& t+e negtive e55e*t o5 t+e +ouse+old si4e on per-
*pit 5r, in*o,e *ould <e t+t ,ost o5 t+e ,e,<ers o5 t+e 5r, +ouse+old re younger nd o5 s*+ool going
ge nd t+ere5ore do not wor0 to <ring in*o,e. It *ould lso <e <e*use o5 t+e gol o5 poor ,rried 5r,ers to
+ve ,ore *+ildren s old ge se*urity nd +ouse+old l<our (Kensen& (''0!. 3lso t+e ,Eority o5 5r,
+ouse+olds <eing *+ildren reAuires ,ore ti,e to <e llo*ted towrds t0ing *re o5 t+e, nd t+ere5ore redu*es
t+e options to generte dditionl per-*pit 5r, in*o,e nd t+is *ould lso put strin on t+e little in*o,e o5
t+e +ouse+old restri*ting 5urt+er reinvest,ent.
8rge 5r, si4e gives opportunity 5or diversi5i*tion o5 *rops *ultivted so s to +ve <ot+ perennil nd s+ort
period yielding *rops. >+is +elps in *us+ioning t+e 5r, +ouse+old t ll ti,es. >+ere5ore 5r, +ouse+old wit+
lrge 5r, si4e is e:pe*ted to +ve +ig+er per-*pit gri*ulturl in*o,e +olding ll ot+er 5*tors *onstnt.
Cro, ><le ".4 t+e log o5 5r, si4e is signi5i*nt t ( per*ent level o5 signi5i*n*e nd +s positive i,p*t on
+ouse+old per-*pit gri*ulturl in*o,e. >+is i,plies t+t n in*rese in t+e 5r, si4e <y one *re in*reses
+ouse+old per-*pit gri*ulturl in*o,e <y 71N0.%6. >+is i,plies t+t 5r, +ouse+olds wit+ lrge 5r, si4e
re produ*tive in t+e use o5 5r, lnds w+i*+ t+ere5ore genertes +ig+er per-*pit gri*ulturl in*o,e. >+is
5inding e,p+si4es t+e 5*t t+t lnd is pri,ry input in gri*ulture.
>+e *oe55i*ient o5 t+e vri<le& log o5 vlue o5 5r, invest,ent is signi5i*ntly positive t ( per*ent level o5
signi5i*n*e i,plying t+t 5or e*+ unit in*rese in t+e log o5 vlue o5 5r, invest,ent& per-*pit 5r, in*o,e
in*rese <y 71N0.27. >+is ,ens t+t s ,ore invest,ents re ,de in t+e 5r,& it <rings <out ,ore
produ*tivity nd +en*e in*reses per-*pit 5r, in*o,e. >+is *ontrsts t+e 5indings o5 -eit+ et el. (2007! w+o
5ound out t+t s ,ore invest,ent goes into t+e 5r, se*tor& it <rings <out redu*tion in per-*pit 5r,
in*o,e.
>+e 5orest nd svnn+ 4ones +ve positive *oe55i*ients <ut t+t o5 svnn+ 4one is not signi5i*nt. >+e
i,pli*tion o5 t+e signi5i*ntly positive *oe55i*ient o5 5orest 4one is t+t in *o,prison wit+ 5r, +ouse+olds in
t+e *ostl 4one& 5r, +ouse+olds in t+e 5orest 4one re <le to in*rese t+eir per-*pit 5r, in*o,e <y
71N0.(2. >+is 5inding *on5ir,s t+e di55erent *li,ti* nd topogrp+i*l *onditions in t+e vrious 4ones w+i*+
,y <e 5vour<le or un5vour<le to gri*ulturl produ*tion (Seini& 2002!.

0# Policy Im-lications
)url non-5r, *tivities re n i,portnt driving 5or*e 5or sustined in*o,e growt+ nd e*ono,i* develop,ent
in rurl 7+n. 1owever t+e develop,ent o5 non-5r, *tivities *o,pro,ise gri*ulturl produ*tion nd
t+reten 5ood se*urity. 6sing *ross-se*tionl dt 5ro, 7+n& t+is study +s e:,ined t+e e:tent to w+i*+
non-5r, *tivities redu*e gri*ulturl produ*tivity in rurl 7+n.
7overn,ent o5 7+n re*ogni4es t+e need to in*rese gri*ulturl produ*tivity sustin<ly in prti*ulr on s,ll
5r,s in 7+n. 1owever& it reAuires long-ter, nture o5 engge,ent to ,eet 5uture de,nd 5or 5ood nd
ot+er gri*ulturl produ*ts. >+e study re*o,,ends t+ere5ore invest,ent in sustin<le ppro*+es to
produ*tivity growt+ in t+e gri*ulturl se*tor& wit+ prti*ulr ttention to s,ll+older 5r,ers& <ot+ wo,en nd
,en& **ording to t+eir role in t+e overll gri*ulturl nd 5ood se*urity syste,s& 5ostering stru*turl
trns5or,tion nd sustin<le gri*ulturl growt+.
3gin& sin*e +ouse+olds see gri*ulture s ris0y venture& nd pre5er to invest in non-5r, *tivities w+i*+ re
less ris0y@ t+us suggesting *o,petition <etween t+e two se*tors. >+is study t+ere5ore re*o,,ends t+t poli*ies
,ust trget gri*ulture dire*tly. Cor instn*e& *redit institution w+i*+ supports gri*ulturl produ*tion
(
nd
ensures t+t 5r,ing <e*o,es sel5-sustining *n <e est<lis+ed.
>+e *oe55i*ients
2
o5 t+e edu*tionl levels were 5ound to <e negtive i,plying negtive e55e*t on per-*pit
5r, in*o,e s *o,pred to no edu*tion. >+ese *oe55i*ients t+ere5ore suggest t+e need to strengt+en nd re-

(
Credit s*+e,e i,ed t supporting only gri*ulturl produ*tion.
2
.ven t+oug+ not ll t+e *oe55i*ient were sttisti*lly signi5i*nt
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e,p+si4e t+e i,portn*e o5 gri*ulture s tug+t su<Ee*t in s*+ool. >+us& students s+ould <e en*ourged to
pursue gri*ulture relted su<Ee*ts t +ig+er levels o5 edu*tion. >+e ?inistry o5 .du*tion nd t+e 7+n
.du*tion Servi*e s+ould ,0e gri*ulturl s*ien*e n integrl prt o5 <si* edu*tion nd en*ourge 5r,
+ouse+olds to ttend s*+ool to lern <out new te*+nologies nd strtegies to i,prove gri*ulturl produ*tion in
t+e long run. ?ore gri*ulturl *olleges ,ust lso <e est<lis+ed nd well-resour*ed to eAuip students o5 su*+
institutions to pply ,odern te*+nology in gri*ulture.
In *on*lusion& s non-5r, in*o,e is gining grounds in 7+n& it s+ould not <e pro,oted t t+e peril o5
gri*ulture sin*e t+e two re not seen to *o,ple,ent e*+ ot+er <e*use t+e engge,ent in non-5r, *tivities
rt+er de*rese 5r, in*o,e in rurl 7+n.

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%F.
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$ornal o! 0e"elopment 7tdies& 40; (-%0.
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$ol %((F!;(%67-(%F4.
7+n Sttisti*l Servi*e (7SS& 200F! 7+n 8iving Stndrds Survey )ound $ 200"G6
7+n Sttisti*l Servi*e (7SS& 20(2!& )evised 7ross Do,esti* Produ*t 20((
7ordon& 3.& nd Crig& C. (200(!& )url Non-5r, 3*tivities nd Poverty 3llevition in Su<-S+rn 35ri*.
+atral Resorces 'nstitte* 7ocial and &conomic 0e"elopment 0epartment Policy 7eries (4. 1hatham* U<8
1gg<lde& S.& et. l. (200"!& >+e )url Non-3gri*ulturl .*ono,y; Pt+wy out o5 Poverty or Pt+wy inO
Paper Presented at the 9eetin% o! the 'nternational (ood Policy Research 'nstitte on the (tre o! 7mall4
(arms* /ashin%ton 0)1)
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1u55,n& D. .. ((''(!& 3gri*ulturl +ouse+old ,odels; Survey nd *ritiAue. 'n 9) 1) Hallber%* $) L) (indeis*
and 0) #)Lass 2&ds)6* 9ltiple job4holdin% amon% !arm !amilies (pp. 7'-(((!. 3,es& I3; Iow Stte 6niversity
Press.
Isl,& N. ((''7!& >+e Non-5r, Se*tor nd )url Develop,ent. (ood* #%ricltre and &n"ironment 0iscssion
Paper No. 22.
8nEouw& P. (('''! )url Non-3gri*ulturl .,ploy,ent nd Poverty in .*udor& .*ono,i* Develop,ent nd
Culturl C+nge. 4F((! #*to<er
?ddl& 7. S. (('F%!& 8i,ited-Dependent nd Mulittive $ri<les in .*ono,i*s& New 2or0; C,<ridge
6niversity Press& pp. 2"7-'(
?n& N.& nd Sdiy& S. I. (200'!& #55-5r, .,ploy,ent Prti*iption ,ong Pddy Cr,ers in t+e ?ud
3gri*ulturl Develop,ent 3ut+ority nd -e,sin Se,er0 7rnry res o5 ?lysi. #sia4Paci!ic
0e"elopment $ornal& (6(2!& (42-("7.
?rslnd& N. et. l. (2000!& Poli*y nd )eser*+ on t+e )url Non-5r, .*ono,y; 3 review o5 Con*eptul&
?et+odologi*l nd Pr*ti*l Issues. 1hatham* U<8 +atral Resorces 'nstitte)
)erdon& >. ((''7!& 6sing .viden*e o5 1ouse+old In*o,e Diversi5i*tion to In5or,. 3 Study o5 t+e )url Non-
Cr, 8<our ?r0et in 35ri*. /orld 0e"elopment& 2"("!& 7%"P747.
)erdon& >. (200(!& )url Non-5r, .,ploy,ent nd In*o,es in 8tin 3,eri*; #verview nd Poli*y
I,pli*tions. /orld 0e"elopment& 2'(%!& %'"-40'.
)erdon& >.& et.l.((''4!& 8in0s <etween Non-5r, In*o,e nd Cr, Invest,ents in 35ri* 1ouse+olds; 3dding
Developing Country Studies www.iiste.org
ISSN 2224-607X (Pper! ISSN 222"-0"6" (#nline!
$ol.%& No.'& 20(%

FF
t+e Cpitl ?r0et Perspe*tive. #merican $ornal o! #%ricltral &conomics* 76("!& ((72-((76.
)u<en& ). nd vn den 9erg& ?. (200(!& Non-5r, e,ploy,ent nd poverty llevition o5 rurl 5r, +ouse+olds
in 1ondurs. /orld 0e"elopment& 26; "4'-"60.
Seini& 3. D. (2002!& 3gri*ulturl 7rowt+ nd Co,petitiveness under Poli*y )e5or,s in 7+n. Technical
Pblication +o) A,6) Le%on8 Uni"erity o! Bhana* 'nstitte o! 7tatistical* 7ocial and &conomic Research 2'77&R6.
Send4& 9. (20((! QNon-5r, In*o,e Diversi5i*tion in )url 7+n; Deter,innts nd I,pli*tions 5or
In*o,e Distri<ution nd Del5reR& $D? $erlg Dr. ?ueller
Su,ner& D. 3. (('F2! >+e #55-5r, Supply o5 Cr,ers. #merican $ornal o! #%ricltral &conomics* 64(%!&
4''-"0'.
Dolde+nn >. (2000! .*ono,i* 3nlysis nd Poli*y I,pli*tions o5 Cr, nd #55-5r, .,ploy,ent& 3 Cse
Study in >igry )egion o5 .t+iopi. Unpblished 9asterCs Thesis* /a%enin%en Uni"ersity* /a%enin%en* the
+etherlands.

A--endi1
><le 3(; #8S )egression o5 Non-5r, In*o,e nd ot+er .:plntory $ri<les
2tandard ,rror
3ariable 4oefficient t-stat --value
3ge o5 1ed o5 1ouse+old 0.0(7F 0.0(0' (.64 0.(02
3ge SAured -0.000( 0.000( -(.26 0.206
No .du*tion ()e5. 7roup!
9si* .du*tion -0.0F(F 0.(064 -0.77 0.442
Se*ondry .du*tion 0.0%7" 0.0'27 0.4 0.6F6
1ig+er .du*tion -0."46" 0.0'7% -".62 0.000///
1ouse+old Si4e -0.0'26 0.0((2 -F.% 0.000///
3**ess to Credit 0.607( 0.06F% F.F' 0.000///
3vil<ility o5 >ele*o, 0.(607 0.("7" (.02 0.%0F
3vil<ility o5 ?r0et 0.0F%% 0.(006 0.F% 0.40F
3vil<ility o5 9n0 0.0%6F 0.(%%7 0.2F 0.7F%
3vil<ility o5 ?otor<le )od 0.0(6" 0.0'F" 0.(7 0.F67
3vil<ility o5 Pu<li* >rnsport 0.4046 0.0F4' 4.76 0.000///
3vil<ility o5 .le*tri*ity -0.0"6( 0.("7' -0.%6 0.722
Costl Lone ()e5. 7roup!
Corest Lone 0.(0(2 0.0'(0 (.(( 0.266
Svnn+ Lone -0.0"%2 0.0'(4 -0."F 0."6(
Constnt (2.('4( 0.27%7 44."" 0.000///
Nu,<er o5 #<s 40"6
C( ("& 4040! 24.0(
Pro< S C 0.000
)-sAured 0.0F(F
3dE )-sAured 0.07F4
555significant at "6 55significant at +6 5significant at "76
Sour*e; Co,puted 5ro, 78SS" <y ut+ors

><le (; Des*riptive Sttisti*s o5 Independent Continuous $ri<les 5or .*ono,etri* 3nlysis
3ariable 8bs .ean 2td# 'ev# .in .a1
3ge o5 1ouse+old 1ed 40"6 42.('F7 (6.(%42 (6 ''
3ge SAured 40"6 2040.'7' ("7F.7'40 2"6 'F0(
1ouse+old Si4e 40"6 ".04F% %.0%4% ( 2'
8og o5 Non-5r, In*o,e 40"6 (2.%%%" 2.(227 0 (F.2FF6
8og o5 3gri* In*o,e 40"6 (%.7'(4 (.40%6 6.272' (F.(42"
8og o5 Cr, Si4e 40"6 (.6(F" 0.F07( 0.(F2% F.'227
8og o5 $l o5 Cr, Invest 40"6 (2.%'27 (.42F6 7.600' ('.(727
Sour*e; Co,puted 5ro, 78SS " dt <y ut+ors.


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F'
><le 2; Des*riptive Sttisti*s o5 Independent Ctegori*l $ri<les 5or .*ono,etri* 3nlysis
3ariable Fre9uency Percent 4umulative
Non-farm Income
Prti*iptes %&4%% F4.64 F4.64
Do not Prti*ipte 62% (".%6 (00
No ,ducation
2es 66F (6.47 (6.47
No %&%FF F%."% (00
:asic ,ducation
2es F(' 20.(' 20.('
No %&2%7 7'.F( (00
2econdary ,ducation
2es "'4 (4.64 (4.64
No %&462 F".%6 (00
Higher ,ducation
2es 2&7'F 6F.'F 6F.'F
No (&2"F %(.02 (00
Farmer-:ased 8rg#
?e,<er 6%" (".66 (".66
Non-,e,<er %&42( F4.%4 (00
Availability of :an*
3vil<le 260 6.4( 6.4(
Not 3vil<le %&7'6 '%."' '%."'
Availability of )elecom
3vil<le '0F 22.%' 22.%'
Not 3vil<le %&(4F 77.6( (00
Availability of .otorable Road
3vil<le %&20( 7F.'2 7F.'2
Not 3vil<le F"" 2(.0F 2(.0F
Availability of .ar*et
3vil<le "62 (%.F6 (%.F6
Not 3vil<le %&4'4 F6.(4 (00
Access to 4redit
3**ess (&44' %".72 %".72
No 3**ess 2&607 64.2F (00
3vil<le 2&424 "'.76 "'.76
Sour*e; Co,puted 5ro, 78SS " dt <y ut+ors.

><le 2; Des*riptive Sttisti*s o5 Independent Ctegori*l $ri<les 5or .*ono,etri* 3nlysis (*ontBd!
3ariable Fre9uency Percent 4umulative
Availability of Public )rans-ort
Not 3vil<le (&6%2 40.24 (00
Availability of ,lectricity
3vil<le '0( 22.2( 22.2(
Not 3vil<le %&("" 77.7' (00
,cological ;ones
4oastal
2es %%2' F2.0F F2.0F
No 727 (7.'2 (00
Forest
2es 2%4( "7.72 "7.72
No (7(" 42.2F (00
2avannah
2es 2442 60.2( 60.2(
No (6(4 %'.7' (00
Sour*e; Co,puted 5ro, 78SS " dt <y ut+ors.


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'0
><le %; Pro<it .sti,tes o5 Non-Cr, In*o,e Prti*iption De*ision .sti,tion
3ariable 4oefficient 2tandard ,rror <-stat --value
3ge o5 1ed o5 1ouse+old 0.00%( 0.00F2 0.%F 0.706
3ge SAured 0.0000 0.000( -0.2( 0.F%(
No .du*tion ()e5. 7roup!
9si* .du*tion 0.0'24 0.0F(( (.(4 0.2""
Se*ondry .du*tion 0.0(06 0.06'6 0.(" 0.F7'
1ig+er .du*tion 0.020" 0.07%4 0.2F 0.7F
1ouse+old Si4e -0.0004 0.00F% -0.0" 0.'"F
3**ess to Credit 0.0F4( 0.0"(' (.62 0.(0"
3vil<ility o5 >ele*o, -0.2%42 0.(204 -(.'" 0.0"2/
3vil<ility o5 ?r0et 0.0'7' 0.07F4 (.2" 0.2(2
3vil<ility o5 9n0 -0.2244 0.0'44 -2.%F 0.0(7//
3vil<ility o5 ?otor<le )od 0.2%0" 0.07(6 %.22 0.00(///
3vil<ility o5 Pu<li* >rnsport 0.0"'% 0.064' 0.'( 0.%6(
3vil<ility o5 .le*tri*ity 0.(4(7 0.(224 (.(6 0.247
Costl Lone ()e5. 7roup!
Corest Lone -0.(6(4 0.07(4 -2.26 0.024//
Svnn+ Lone -0.2(F2 0.07(2 -%.06 0.002//
Constnt 0.F%F2 0.20"7 4.0F 0.000///
Nu,<er o5 #<s 40"6
8) *+i
2
(("! 4F.(%
Pro< S *+i
2
0.000
Pseudo )
2
0.0(%F
555significant at "6 55significant at +6 5significant at "76
Sour*e; Co,puted 5ro, 78SS" <y ut+ors

><le 4 .sti,tes o5 t+e #8S ?odel $ri<les (1e*0,n Sele*tion ?odel!
3ariable 4oefficient 2tandard ,rror t-stat P-value
Non-Cr, In*o,e -0.0('4 0.00'( -(.'" 0.0"2/
3ge o5 1ouse+old 1ed 0.0(26 0.006F (.F6 0.06%/
3ge SAured -0.000( 0.000( -(.F2 0.070/
No .du*tion ()e5. 7roup!
9si* .du*tion -0.0246 0.0662 -0.%7 0.7(0
Se*ondry .du*tion -0.(246 0.0"74 -2.(7 0.0%0//
1ig+er .du*tion -0.07F0 0.0"'" -(.%( 0.('0
1ouse+old Si4e -0.(2F2 0.007( -(F.0' 0.000///
8og o5 Cr, Si4e 0.%644 0.0264 (%.F( 0.000///
8og o5 $lue o5 Cr, Invest 0.26"F 0.0("( (7.6( 0.000///
Costl Lone ()e5. 7roup!
Corest Lone 0.((67 0.0"6% 2.07 0.0%F//
Svnn+ Lone 0.07'' 0.0"6' (.4( 0.(60
3vil<ility o5 Cr,er-<sed #rg. 0.0222 0.0""( 0.40 0.6FF
Inverse ?ills )tio -0.026" 0.044' -0."' 0.0""/
Constnt (0.2F"( 0.2402 42.F% 0.000///
Nu,<er o5 #<s 40"6
C( (%& 4042! 7(.%7
Pro< S C 0.000
)-sAured 0.(F67
3dE )-sAured 0.(F4(
555significant at "6 55significant at +6 5significant at "76
Sour*e; Co,puted 5ro, 78SS" <y ut+ors
Note: t+e dependent vri<le is log o5 per-*pit 5r, in*o,e

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