Land and Labour Allocation Decisions in the Shift from Subsistence to Commercial Agriculture

This chapter assesses farm household land and labour allocation decisions under imperfect factor and product markets. A non-separable farm household model is adapted to obtain econometric estimates of land and labour allocation decisions under different market participation regimes. Survey data obtained from a sample of 154 farm households producing both cash and food crops in central and eastern Ethiopia is used for the analysis. Endogenously switching regression estimation results shows that market participation, which is household specific, affects the quantity of land and labour that households allocate to food and cash crop production. There is also a significant regional difference in resource allocation decisions. Farm capital ownership (including motor pump) influences the allocation decisions. Thus, policies improving the efficiency in rural factor and product markets promote farm households' participation in these markets and orient their resource allocation decisions towards more cash crop production and higher farm income.