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Market imperfections, liquidity, and farm household labor allocation: the case of rural South Africa


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Asset endowments and market imperfections shape households’ labor allocation decisions and lead to different production regimes within rural farm households in South Africa. This article uses a farm household model to explain the presence of three main household groups determined on the basis of the labor regime adopted: small peasants (working both on and off farm), self-cultivators (autarkic in labor) and hiring-in households. A partial generalized ordered logit is used to test the main predictions of the model and a Brant test on threshold constancy is performed to identify the household-specific factors affecting labor market participation. The results show that liquidity constraints and market imperfections matter in the choice of the labor strategy adopted. Liquidity-constrained households are more likely to sell labor off farm while access to information facilitates the hiring in of workers.