Rural Shadow Wages, Labour Supply And Agricultural Production Under Imperfect Markets: Empirical Evidence From Viet Nam

Due to market imperfections and sexual division of labour, this paper takes interest in gender specific values of agricultural labour products (or shadow wages) and the problem of aggregating agricultural production activities. The paper analyses two farming systems instead of using an aggregated agricultural harvest under the presumption that households are restricted in choosing crop patterns and consequently limited in their allocation of labour. The farming systems differ in the level of diversification over crops where a limited number of households are able to engage in the more diversified system (two crops: rice and sugar cane) while other households are restricted to cultivate only one of the two (rice). These circumstances are likely to be widespread in developing countries. Since an entry restriction limit the choice of crop pattern, production functions for rice and sugar cane are estimated separately. We find labour returns to differ significantly between farming systems with lower returns for single-crop producers. The paper tests whether non-separability conditions holds and find in general that theoretical predictions cannot be falsified. This implies that over the whole sample households are on average unable to adjust their labour supply at the margin and hence, using shadow wages from an aggregated agricultural production is likely to mislead policy conclusions. We also find that diversified household members do equate returns between the farming systems while households that are restricted to one production activity yield lower returns. Since less diversified households are in general poorer poverty alleviation policies must address the entry restriction but first, policy makers should check whether they need to redraw policy conclusions made on aggregate harvests.