ABSTRACTTHREE ESSAYS IN DEVELOPMENT ECONOMICSBy Godwin Debrah A large fraction of people in developing countries are engaged in some form of agricultural activity for a living, making it very important for any effort or program designed to address the issues with poverty or inclusiveness, to not abandon smallholder farmers. This dissertation, titled, Three Essays in Development Economics seeks to bring to the attention of policymakers on what to do and how to boost the incomes of rural dwellers in developing countries sustainably. I use data from Ghana for the first essay, the second essay is a theory paper and data from Tanzania is used for the third essay. The first essay, which is titled, Does the Inverse Farm Size-Productivity Hypothesis hold among Larger Farms. New Evidence from Ghana, examines the relationship between the area planted in hectares and three measures of productivity, over a wide range of medium and large scale farm sizes that represent the fastest growing segment of farms in Africa and now account for a significant fraction of total area cultivated in the region. The results when Ordinary Least Squares estimation is used, point to a negative and significant relationship between farm scale and productivity. However, there is no statistically significant result in favor of the negative relationship once I instrument for the bias that may be due to measurement error in farm size variable. This can guide policymakers on how to redistribute land efficiently. Inability of lenders to price for risk, limits the amount of loans financial institutions are able to give out. This is what the second essay titled, Joint Liability Lending with Correlated Risks explores. Because the rural-poor have no collateral to access loans, joint liability lending has been a strategy microfinance institutions have used to price for risk and improve repayment rates. However, when project returns are correlated like those of farmers, joint liability lending may not help the lender to effectively price for risk to improve efficiency and repayment rates.The second essay thus, theoretically, characterizes the optimal lending contracts in such a situation. I find that correlation reduces the efficiency of group-based joint liability lending relative to independent risks’ case. Thus, correlation is bad for group lending. I also extend the model to show that, in some instances, it may be better for banks to separate whom they serve; serves either only borrowers with correlated project returns or borrowers with independent risk. The third essay in this dissertation titled, Predictors of the Choice of Rural Nonfarm Activity in Tanzania investigates the predictors of participation in the rural nonfarm economy and the predictors of the choice between wage and self-employment conditional on participation. While some authors argue that households choose self-employment because they have no wage employment options, others argue self-employed people are self-selected entrepreneurs and should have some support. Understanding the predictors of the choice of employment would serve as a source of very relevant information to policymakers.The results suggest that, assets are key predictors of households’ participation in agricultural as well as in the rural nonfarm economy. For households that participate in the rural nonfarm economy, the choice between wage employment and self-employment is also related to the availability of assets. In sum, this dissertation uses both theoretical and empirical evidence to proffer solutions or suggestions that would help reduce poverty in developing countries.
Read
