Welfare Effects of Diversification on Farm Households in Cambodia

This paper analyzes the effects of diversifying into off-farm activities on farm household welfare in terms of household food consumption in rural Cambodia. An endogenous switching model is applied to data from the 2009 Cambodia Socio-Economic Survey to assess whether farm households make food consumption gains from participation in salary-paid employment and self-employment. This model accounts for selection bias arising from unobserved factors that potentially determine both off-farm participation and food consumption. It also controls for structural differences between participants and nonparticipants in off-farm activities that most previous studies do not account for. The results reveal that by participating in salary-paid employment, farm households make positive gains in food consumption per capita, then supporting the hypothesis that engagement in salary-paid employment has positive effects on farm households' welfare. However, per capita food consumption gains from participation in self-employment are negative, suggesting that the salary-paid employment has more important role in promoting household welfare in rural communities than does the self-employment.