Nexus between rural nonfarm income and agricultural production in Bangladesh

Evidence from the rural livelihood literature shows that farm households in developing countries engage in nonfarm employment to supplement their household income. This raises the question of whether nonfarm income complements or competes with agricultural production due to a possible shift in farm household labour to nonfarm employment. Using survey data, this study examines the impact of rural nonfarm income on farm households’ agricultural production in Bangladesh. Applying the instrumental variable Tobit model, we find a nonlinear relationship between nonfarm income and total production expenditure as well as expenditures on major purchased inputs (equipment, seed, fertilizer, purchased labour). This indicates that when nonfarm income rises, production expenditure increases but at a decreasing rate. Furthermore, the endogenous stochastic frontier production model…