Rural nonfarm income and its impact on agriculture: evidence from Albania

Abstract Using data from the 2005 Albania Living Standards Measurement Study (ALSMS05) survey, this article analyzes the overall impact of household nonfarm income‐generating activities (RIGA) on agricultural expenditures as well as technical efficiency of rural farm households. We also differentiate the impact for subsistence and commercial farmers, who are in the top 25% of the distribution of value of annual agricultural sales. Our results show that on the whole, Albanian rural households utilize their nonfarm earnings not to invest in time‐saving, efficiency‐increasing technologies, but to move out of crop production. We derive similar findings when we try to estimate the same relation separately for commercial and subsistence farmers. However, for commercial farmers, we find a positive impact of household nonfarm earnings on livestock expenditures.