Does off-farm income compete with farm income?: Evidence from Malawi

Abstract

In rural areas of Malawi, where farmers have small land holding sizes, abundant labour resources and where markets are imperfect; off-farm income has complex but interesting linkages with farm productivity. The question of whether off-farm income competes with or complements farm income is empirical because it has been inconclusive from theories and previous research. This paper examines the impact of off-farm income on farm productivity and household welfare, using panel data collected in central and southern rural areas of Malawi in 2007 and 2009. Two Stage Random Effect Tobit models are used to analyse the data. I find that off-farm income has a complementing effect on land productivity, average labour productivity, input usage and total household income. This implies that the positive effects of off-farm income, through relaxation of the imperfect credit and insurance markets, are significantly dominant over the negative effects of resource competition.