Fertilizer Use, Risk, and Off‐Farm Labor Markets in the Semi‐Arid Tropics of India

A two‐period model is developed in which a risk‐averse farmer uses off‐farm labor to smooth consumption, leading to greater use of fertilizer. Fertilizer demand is shown to increase with the depth of the off‐farm labor market. Controlling for exogenous weather risk, farmers use more fertilizer the lower the unemployment rate and the higher the share of nonagricultural work in total off‐farm labor. The results suggest that off‐farm labor markets and own‐farm production may be complementary in risky production environments, so that policies which promote the depth of the off‐farm labor market in low‐income areas may also bolster farm productivity.