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Seasonal Liquidity, Rural Labor Markets and Agricultural Production

Günther Fink, B. Kelsey Jack and Felix Masiye

No 24564, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many rural households in low and middle income countries continue to rely on small-scale agriculture as their primary source of income. In the absence of irrigation, income arrives only once or twice per year, and has to cover consumption and input needs until the subsequent harvest. We develop a model to show that seasonal liquidity constraints not only undermine households’ ability to smooth consumption over the cropping cycle, but also affect labor markets if liquidity-constrained farmers sell family labor off-farm to meet short-run cash needs. To identify the impact of seasonal constraints on labor allocation and agricultural production, we conducted a two-year randomized controlled trial with small-scale farmers in rural Zambia. Our results indicate that lowering the cost of accessing liquidity at the time of the year when farmers are most constrained (the lean season) reduces aggregate labor supply, drives up wages and leads to a reallocation of labor from less to more liquidity-constrained farms. This reallocation reduces consumption and income inequality among treated farmers and increases average agricultural output.

JEL-codes: D14 J2 J43 O13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr and nep-lma
Date: 2018-04
Note: DEV EEE LS
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