The role of agricultural productivity in non-farm activities in Nigeria: effects on sector orientation and factor intensity

The role of agricultural productivity on non-farm economies in developing countries remains widely debated in the literature. A knowledge gap exists particularly regarding the heterogeneity among non-farm activities, in terms of sectoral orientations, factor intensities, and returns to factors, and the effects of agricultural productivity on these aspects. Using nationally representative household data from Nigeria, this study shows that higher agricultural productivity leads to generally greater capital and labor uses for non-farm activities by the households. This effect is particularly stronger for non-farm activities that are agriculture-oriented, as compared to those that are not agriculture-oriented. Furthermore, higher agricultural productivity raises returns to capital and labor for agriculture-oriented non-farm activities, potentially enhancing the contribution of nonfarm economies to overall economic and income growth. By also increasing the labor use for both farming and non-farm activities, higher agricultural productivity is also found to increase overall rural employment. In obtaining these results, use an agroclimatic similarity index to instrument household-level total factor productivity in agriculture.