Nexus between rural nonfarm income and agricultural production in Bangladesh

Abstract

Evidence from the rural livelihood literature shows that farm households in developing countries engage in nonfarm employment to supplement their household income. This raises the question of whether nonfarm income complements or competes with agricultural production due to a possible shift in farm household labour to nonfarm employment. Using survey data, this study examines the impact of rural nonfarm income on farm households' agricultural production in Bangladesh. Applying the instrumental variable Tobit model, we find a nonlinear relationship between nonfarm income and total production expenditure as well as expenditures on major purchased inputs (equipment, seed, fertilizer, purchased labour). This indicates that when nonfarm income rises, production expenditure increases but at a decreasing rate. Furthermore, the endogenous stochastic frontier production model indicates that technical inefficiency in agricultural production decreases at an increasing rate when nonfarm income rises. Overall, the findings of this study suggest that nonfarm income 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 income opportunities to rural households complements agricultural production. This would also lead to raised food production, ultimately leading to an increase in food availability as well as food security.

Complementarity and substitutability between farm and nonfarm activities: Evidence from agricultural households in Tanzania

“…These results suggest that possible complementary and substitution effects of nonfarm activities may offset each other in the case of Tanzania. As such, our results are consistent with the findings reported by Amare and Shiferaw (2017) in the case of Uganda, but contrary to that of Huang, Wu, and Rozelle (2009) and Mondal et al (2021) in the case of China and Bangladesh, respectively, who conclude that income from nonfarm activities can improve agricultural production by relaxing liquidity constraints.…”

“…Similarly, Mondal, Selvanathan, and Selvanathan (2021) using a cross‐sectional survey data from Bangladesh found that nonfarm income has a positive income effect on agriculture, which they explain through a mechanism related to the relaxation of the liquidity constraint enabling farmers to buy more inputs.…”

Interactive relationship between non-farm employment and mechanization service expenditure in rural China

“…Although labor migration contributes to rural income growth, it also generates a series of issues, such as farm labor shortage and rising farm labor wages, that challenge sustainable agricultural production. As farm machinery can substitute farm labor and potentially save production costs by improving farm production efficiency (Liu et al, 2014;Ma et al, 2021;Mano et al, 2020;Mondal et al, 2021;Olmstead and Rhode, 2014;Wang et al, 2016;Zhou et al, 2018), the development of farm machinery has been growing in recent years.…”

Defining Household Typologies Based on Cropland Use Behaviors for Rural Human-Environment Systems Simulation Research: A Case Study in Southwest China

“…Economic conditions and income strategies reflect differences in farmers' purchasing power for agricultural materials, which directly affect agricultural production decisions [30,31]. Indicators of cash income, household deposits, access to cash credit, and the composition of the family farm's income were considered in this study.…”