Complementarity and substitutability between farm and nonfarm activities: Evidence from agricultural households in Tanzania

Increasing evidence shows that farm households in developing countries maintain a portfolio of income-generating activities. Concerns have been raised that household income diversification to include nonfarm activities will stifle farm works, and thus reduce agricultural productivity. On the contrary, some evidence of complementarity between the farm and nonfarm activities in rural areas has been found. This paper uses data from the fourth and the fifth waves of Tanzania's National Panel Surveys to examine whether there exists complementarity or substitutability between farm and nonfarm activities in rural Tanzania. The findings show that participation in off-farm work and nonfarm business activities has no clear relationship to the adoption and use of improved agricultural practices, namely, irrigation, fertilizers, pesticides, and herbicides. Participation in off-farm work and nonfarm business activities does not also seem to directly influence agricultural investments, production, and productivity nor overall household income. These results suggest that the complementary and substitution effects of nonfarm activities offset each other in Tanzania, implying that proper policies are required to unleash the potential impact of nonfarm activities on agriculture.