Nonfarm entrepreneurship, crop output, and household welfare in Tanzania: An exploration of transmission channels

Abstract

This study analyzes panel data from the Tanzania Living Standards Measurement Study‐Integrated Surveys on Agriculture by the World Bank to investigate the impact of nonfarm entrepreneurship as a nonfarm activity on the value of crop output and household welfare, and to explore the potential transmission channels among rural farm households. Using a dynamic panel model to address endogeneity, our results reveal that nonfarm entrepreneurship has a positive impact on the value of crop output and household welfare. Our findings suggest that income from nonfarm entrepreneurship may enhance crop output through crop production technology and credit access, and household welfare through an increase in consumption expenditure and food expenditure as potential transmission mechanisms. Policies that enhance nonfarm entrepreneurship may also reinforce crop production and the welfare of farm households and are thus imperative. We suggest that policies that boost nonfarm sector growth such as agro‐processing and agribusiness enterprise development might achieve the twin objectives simultaneously: enhancing crop production and household welfare [EconLit Citations: C33, D24, Q12, 012].

Policy interventions and productive employment in rural sub-Saharan Africa: a gender-differentiated meta-analysis

“…This paper uses a modified income-leisure framework to analyze how a standard rural household maximizes its utility over income and leisure, subject to time constraint (Barasa et al ., 2022; Benjamin, 1992; Chang et al ., 2012). Let T be the farm household's total time endowment in a given time period such that the household allocates T between farm work (Lf), non-farm work (Lnf), unpaid domestic work (Ld) and leisure time (Le).…”

“…For farm work, we assume that household and hired labors are heterogeneous. They are imperfect substitutes because of differences in skills, experience and motivation as well as the limited labor market opportunity in rural areas (Barasa et al ., 2022). Therefore, there would be two competitive markets such that the wage rate of household labor (WH) differs from the wage rate of hired labor (Wh) (Mishra and Sandretto, 2002).…”

“…Taking and solving the first-order conditions (FOC) show that farm household's preferences are optimal when the marginal substitution of leisure by income equals the non-farm labor wage which represents the competitive price of leisure: ∂U(.)∂HIWH=∂U(.)∂LeWLnf (Barasa et al ., 2022). Similarly, the FOC provide the following insights.…”

“…Third, the farm household hires labor up to the point that the value of the marginal product of hired labor equals the hiring wage pQ=whH. In summary, the farm household's decision is made in two steps (Barasa et al ., 2022; Chang et al ., 2012; Tesfaye and Nayak, 2022). Household first spends its labor force on farm work and domestic activities to the point where the marginal products are each equal to the competitive wage of nonfarm labor.…”

“…During the last two decades, a large body of literature has investigated the importance and features of rural non-farm sector (Davis et al ., 2010; Winters et al ., 2009, 2010; Haggblade et al ., 2007; Barrett et al ., 2001; Lanjouw and Lanjouw, 2001 Barasa et al ., 2022; Basu and Kashyap, 1992; Christiaensen and Maertens, 2022; Gaddis et al ., 2023; Tesfaye and Nayak, 2022). A major conclusion from these studies is that non-farm activities in rural areas are the norm rather than the exception (Davis et al ., 2016).…”