Farming, Non-Farm Enterprises, and Migration under Inco mplete Markets
Abstract:
We study how rural households in developing countries use non-farm ent repreneurship to smooth consumption following shocks to farm income. Using survey panel data from rural India, we show that transitory shocks to agric ultural productivity lead farm households to reduce farm labor supply, incr ease non-farm labor supply, and become more likely to engage in non-farm en trepreneurship and temporary migration. Unlike temporary migration, these s hocks have persistent effects on non-farm entrepreneurship, as engaging in non-farm activities enables households to accumulate skills that enhance th eir non-farm productivity. We then structurally estimate a dynamic model of household labor supply decisions across farming, non-farm activities, and temporary migration. Counterfactual exercises reveal that over 30% of non-f arm output in rural India comes from activities that households engage in t o protect their consumption following shocks to agricultural productivity. In terms of policy, improving the functioning of insurance markets has subs tantial positive effects on structural transformation. Specifically, weathe r insurance contracts and a minimum income guarantee increase non-farm outp ut by about 70% and 40%, respectively. As a potential implication of climat e change, we find that a negative shift in the rainfall distribution leads to more than a 30% increase in non-farm output, underscoring the role of cl imate-driven structural transformation.
DTSTAMP:20260405T213133Z DTSTART:20250218T130000Z DTEND:20250218T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR