Working Paper: NBER ID: w20218
Authors: Gnther Fink; B. Kelsey Jack; Felix Masiye
Abstract: Small-scale farming remains the primary source of income for a majority of the population in developing countries. While most farmers primarily work on their own fields, off-farm labor is common among small-scale farmers. A growing literature suggests that off-farm labor is not the result of optimal labor allocation, but is instead driven by households' inability to cover short-term consumption needs with savings or credit. We conduct a field experiment in rural Zambia to investigate the relationship between credit availability and rural labor supply. We find that providing households with access to credit during the growing season substantially alters the allocation of household labor, with households in villages randomly selected for a loan program selling on average 25 percent less off-farm labor. We also find that increased credit availability is associated with higher consumption and increases in local farming wages. Our results suggest that a substantial fraction of rural labor supply is driven by short-term constraints, and that access to credit markets may improve the efficiency of labor allocation overall.
Keywords: credit availability; labor supply; Zambia; field experiment; agriculture
JEL Codes: J22; O16; Q12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Access to credit during the growing season (Q14) | Reduced allocation of household labor to off-farm work (D13) |
| Access to credit during the growing season (Q14) | Probability of engaging in off-farm labor fell (J43) |
| Access to credit during the growing season (Q14) | Total number of days worked in off-farm labor fell (J43) |
| Increased access to credit (G21) | Higher consumption levels (E21) |
| Increased access to credit (G21) | Reduction in likelihood of missing meals due to food shortages (I32) |
| Loan transfers (F16) | Substantial increases in local farming wages (J39) |