The heterogeneous effect of shocks on agricultural innovations adoption: Microeconometric evidence from rural Ethiopia

Theoretically, the relationship between shocks and agricultural innovation adoption could be ambiguous. While shocks could lower the competence and capacity of households to adopt new agricultural innovations, households can also take-up agricultural innovations as a coping mechanism against the different shocks they face. Using a nationally representative household data from Ethiopia of the Living Standards Measurement Study-Integrated Surveys on Agriculture (LSMS-ISA) of the World Bank, this paper analyzes the effect of idiosyncratic and covariate shocks on adoption of different agricultural innovations, assuming interdependence among the innovations. We find shocks to have heterogeneous effects on the adoption of agricultural innovations. Specifically, production and health shocks have negative effects on the adoption of high-cost innovations such as improved seeds, chemical fertilizer, and irrigation. However, production shocks are positively associated with low-cost innovations such as organic fertilizer. To enhance farmers’ adoption of agricultural innovations, especially high-cost innovations, there is a greater need towards the design of policies and interventions that would reduce household’s exposure to production and health shocks.