Does the non-farm sector affect production efficiency of the Vietnamese agricultural sector? A stochastic frontier production approach

Abstract

This study examines the impact of the non-farm sector on farm value-added and production efficiency in the Vietnamese agricultural sector by using data from the Vietnam Household Living Standard Survey 2012. Production function and stochastic frontier production analysis is used to determine the impact, and the instrumental variables method is applied to address endogeneity. We find that the Vietnamese non-farm sector has a positive effect on both farm value-added and efficiency. This result indicates that income from non-farm activities relaxes liquidity constraints and farmers can reinvest this capital in agricultural production. Our result provides evidence of the important role played by the non-farm sector in relaxing credit constraints and enhancing agricultural production efficiency for developing countries.