A Production Function Analysis for Private Peasant Holdings Crop Farms in Ethiopia: An Application of Robust Regression
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Date
2009-06
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Addis Ababa University
Abstract
This study applied production function analysis for private peasant holdings crop farms in
Ethiopi a. Four major crop producing regions viz., Tigray, Amhara, Oromia and SNNP were
included in the study. Three regression models for production fun ction namely, linear,
exponential and Cobb Douglas were considered and thoroughly assessed {'or stati stical model
diagnostics. The statistical model diagnostics and checking suggested that crop production
function for each of the regions was found to be appropriately represented by the Cobb-Douglas
production function based on data from the 2007/08 (2000 EC) agricultural sample survey. The
Cobb-Douglas production function was first fitted for each region using ordinary least squares
(OLS) regression. As expected, the parameter estimates using OLS were mi sleading due to the
occurrence of several outlying cases and hence robust regression was taken as a viable
alternative. Based on the results of robust regression, many of the parameter est imates took on
the expected signs, the R2 values were substantially increased and the standard errors of
parameter estimates were decreased at large.
In general, robust regression results indicated that farm size, fe rtili zer, seed, oxen power and
human labor were playing a pivotal role for the maximization of crop yield in each of the studied
regions. From among these variables, the great contribution was found to be due to farm size in
each of the regions with SNNP an exception in whi ch the great share was due to human labor.
However, the contribution of education variable for crop yie ld was found to be stati sti cally
insignificant and received negative sign in Tigray and Amhara regions. Counter to expectations,
the coefficient estimate for irrigation variable in Tigray, Amhara and SNNP regions had come to
obtain negative sign though it was not found to be stati stically significant. The product ion
elasticities for each of the inputs at each region except farm size in Tigray, Amhara and Oromia
suggested that the relation between inputs and output was inelastic, i.e., ho lding other {actors
constant, the marginal return to each factor wi ll decrease as more of the factors are used.
Additionally, crop production functions revealed that returns to scale were estim ated to be greater
than unity in each of the regions indi cating increasing returns to scale.
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Keywords
Private Peasant Holdings Crop