DP5392 How Costly is it for Poor Farmers to Lift Themselves out of Subsistence?

Author(s): Olivier Cadot, Laure Dutoit, Marcelo Olarreaga
Publication Date: December 2005
Keyword(s): entry costs, Madagascar, subsistence, switching regression, threshold regression, unknown sample separation
JEL(s): F10, O12, O19
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5392

The main objective of this paper is to provide estimates of the cost of moving out of subsistence for Madagascar's farmers. The analysis is based on a simple asset-return model of occupational choice. Estimates suggest that the entry (sunk) cost associated with moving out of subsistence can be quite large somewhere between 124 and 153 percent of a subsistence farmer's annual production. Our results make it possible to identify farm characteristics likely to generate large gains if moved out of subsistence, yielding useful information for the targeting of trade-adjustment assistance programs.