Interactive relationship between non-farm employment and mechanization service expenditure in rural China

Purpose - The purpose of this study is to investigate the interactive relationship between non-farm employment and mechanization service expenditure. Design/methodology/approach - The study employs an innovative two-stage probit least squares (2SPLS) model to analyze the survey data collected from 1,148 rural households in China. This model not only simultaneously estimates the impact of non-farm employment on mechanization service expenditure and the impact of mechanization service expenditure on non-farm employment, but also addresses endogeneity issues associated with these two activities. Findings - The empirical results show that non-farm employment and mechanization service expenditure are jointly determined. In particular, the study finds that non-farm employment significantly increases mechanization service expenditure, and vice versa. The results are confirmed by an estimation that captures a dichotomous decision of mechanization service usage. The interactive effects of non-farm employment on mechanization service expenditure are heterogeneous between male and female household heads and among households with different member sizes. Further analyses reveal that (1) mechanization service expenditure increases with increasing non-farm working time; (2) local non-farm employment, rather than provincial non-farm employment, has a larger impact on mechanization service expenditure; and (3) the number of household members employed in non-farm works does not affect mechanization service expenditure significantly. Originality/value - Although mechanization service markets are rapidly growing in many developing and transition countries, little is known about how service purchasing interacts with farmers' decisions to work in the non-farm sector. This study makes the first attempt by investigating the interactive effects of non-farm employment on mechanization service expenditure in rural China. The findings provide significant evidence for policymakers in China and other countries in their efforts to generate non-farm work opportunities and promote agricultural mechanization, with the aim of boosting rural development and improving farm economic performance.