Looking Beyond the Farm and Household: Determinants of On-farm Diversification in India

This paper analyses the factors affecting on-farm diversification decision. Notwithstanding the influence of farm and household conditions, studies have also highlighted the role of external pull factors on farm diversification. Though appraised in scholarship, this aspect has eluded an empirical scrutiny in literature. Taking India as a case, this study shows that apart from farm and household factors, there is a broader agro-ecological and structural feature which impacts on-farm diversification decision. Correcting for endogeneity in a seemingly unrelated system of ordered probit models, a "three-stage" residual inclusion model is estimated. The findings show that proximity to social infrastructure such as schools, colleges, and access to public transport matters for diversification. Results also show that though urbanization may increase demand for variety of products, it might as well impinge upon farm labor supply as non-farm opportunities also rises with urbanization. Thus, the underlying structure of the local economy also merits attention while understanding on-farm diversification process.