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Seasonal Liquidity, Rural Labor Markets and Agricultural Production

Author

Listed:
  • Günther Fink
  • B. Kelsey Jack
  • Felix Masiye

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.

Suggested Citation

  • Günther Fink & B. Kelsey Jack & Felix Masiye, 2018. "Seasonal Liquidity, Rural Labor Markets and Agricultural Production," NBER Working Papers 24564, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24564
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    References listed on IDEAS

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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