Market imperfections, liquidity, and farm household labor allocation: the case of rural South Africa

Lovo, S. ORCID: https://orcid.org/0000-0001-6231-4142 (2012) Market imperfections, liquidity, and farm household labor allocation: the case of rural South Africa. Agricultural Economics, 43 (4). pp. 417-428. ISSN 01695150 doi: 10.1111/j.1574-0862.2012.00593.x

Abstract/Summary

Asset endowments and market imperfections shape households’ labor allocation decisions and lead to different production regimes within rural farm households in South Africa. This article uses a farm household model to explain the presence of three main household groups determined on the basis of the labor regime adopted: small peasants (working both on and off farm), self-cultivators (autarkic in labor) and hiring-in households. A partial generalized ordered logit is used to test the main predictions of the model and a Brant test on threshold constancy is performed to identify the household-specific factors affecting labor market participation. The results show that liquidity constraints and market imperfections matter in the choice of the labor strategy adopted. Liquidity-constrained households are more likely to sell labor off farm while access to information facilitates the hiring in of workers.