Off-farm work and capital accumulation decisions of farmers over the life-cycle: The role of heterogeneity and state dependence

Avner Ahituv, Ayal Kimhi*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

48 Scopus citations


This paper analyzes two principal simultaneous decisions of farm operators: off-farm labor supply and farm capital investment. We first develop a theoretical model analyzing the effects of exogenous shocks on farmers' decisions. Then, we estimate jointly a multinomial probit model of farmers' off-farm labor supply and a switching regression model of farm capital, using a two-period panel data set from Israel. This method enables to account for both unobserved heterogeneity and structural state dependence. The results demonstrate that farm capital investments during the 1970s, which were enhanced by heavily subsidized credit, prevented farmers from seeking off-farm employment opportunities.

Original languageAmerican English
Pages (from-to)329-353
Number of pages25
JournalJournal of Development Economics
Issue number2
StatePublished - 2002

Bibliographical note

Funding Information:
We thank Zvi Eckstein, James Heckman, Yoav Kislev, Yair Mundlak, the Editor and an anonymous referee for valuable comments and suggestions. We have also benefited from the comments of participants in seminars in Tel Aviv, Jerusalem, Rehovot, Rutgers, NC State, Rennes, and Yale, and participants in the 1998 Annual Meeting of the European Society for Population Economics, the 1998 Panel Data Conference, and the 2001 Summer Meeting of the Econometric Society. The Central Bureau of Statistics in Israel provided the data; we especially thank Haim Regev and Meir Rothchild for their help with data issues. Financial support was provided by The Maurice Falk Institute for Economic Research in Israel and The Pinhas Sapir Center for Development.


  • Capital accumulation
  • Life-cycle decisions
  • Off-farm labor
  • Panel data
  • State dependence


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