Does Off-Farm Work Improve Farm Income? Empirical Evidence from Tolon District in Northern Ghana

Abstract

Participation of farm households in off-farm work has gained prominence in recent times as an income diversification strategy. The effect of off-farm work on farm income is however unclear. This paper therefore sought to provide empirical evidence of the income effect of off-farm activity participation using a cross section of maize farmers in Tolon District of Ghana as a case study. In order to account for sample selection bias, the Heckman selection model was used to estimate the factors influencing participation in off-farm work and the determinants of farm income. Furthermore, the study employed propensity score matching to evaluate the impact of off-farm work on farm income. The results indicate that participation in off-farm work is influenced by sex, age, and years of formal education of the respondent, farm size, and number of dependents while farm income is influenced by age of the respondent, farm size, and access to credit. In addition, the result of the propensity score matching revealed that participants in off-farm work increased their farm income by at least GH¢ 1702 as a result of income diversification. The rural economy therefore provides off-farm and on-farm linkages that enhance farmers’ income from agriculture. The creation of employment opportunities outside the farm will therefore complement on-farm work and enhance income from farming.