Is off‐farm income reforming the farm? Evidence from Mexico

Abstract Does access to off‐farm income complement or compete with agricultural production? This article explores the effect of off‐farm income on agricultural production activities, using data from the 2003 Mexico National Rural Household Survey. We first discuss the theoretical conditions under which access to off‐farm income may influence production in an agricultural household model. Instrumental‐variable (IV) estimation methods are then used to test whether agricultural production activities, technologies, and input use differ between households with and without access to off‐farm income. We find that off‐farm income has a negative effect on agricultural output and the use of family labor on the farm, but a positive impact on the demand for purchased inputs. There is also a slight efficiency gain in households with access to off‐farm income. Findings offer insights into how household production evolves as rural households increasingly engage in off‐farm income activities.