Price Response of Rural Households in Ethiopia: Case of Bako, Yetmen, Tiyo/Eteya
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Date
2007-10
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Abstract
The study is conducted to assess price response of Ethiopian farm households. For this purpose, a sample of
217 households selected from food crop growing areas is used. The households are modeled using the nonseparable
farm household framework for the reason that the households are assumed to face incomplete labor
market. The SNQ profit function is estimated to capture the production side of the households where as
AIDS function for consumption side. Elasticities are derived from this function and utilized in calculating
non-separable household model price elaticities. In addition, to examine the implication of market
imperfection, the separable farm household price elasticities are calculated for comparison purpose.
The findings show that price response of agricultural production activities are negatively affected by the rise
in price of agricultural goods under non-separable framework unlike the separable one. On the other hand,
change of fertilizer price in downward direction has positive impact on production and input use. So, the
rise in price of agricultural goods is not the right incentive for increasing production. Hence, a more
appropriate incentive for production would be a reduction in the price of fertilizer than a rise in price of
agricultural goods. The possible policy implication which could be inferred form the analysis is that
governments need to have the discretion to provide support in input use, particularly fertilizer, in the form
of subsidy so as to initiate rural households to produce more.
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Economic Policy Analysis, Economic Policy