Social interactions and returns to farm inputs in smallholder agriculture in Kenya
This study is motivated by a desire to establish the extent to which social interactions affect production behavior of farmers and returns in smallholder agriculture in Kenya, aspects that are absent from the existing literatures in Africa. Social interactions include learning and peer relationships that exist among economic agents. The study is further motivated by concerns about poverty effects of incomes that are mediated through social interactions. In the empirical analysis of the thesis, a variety of regression methods are applied to primary data collected from Nyeri, a rural district in Kenya to estimate effects of social interactions on demand for farm inputs and on returns to these inputs. Since data on social interactions are not available, interactions are proxied by fertilizer application, animal feeds, soil conservation efforts and property rights, all measured at the village level. There are three main findings from the thesis. The first finding is that there are sizeable returns to fertilizers and animal feeds in smallholder agriculture in the study district. The elasticity of crop output with respect to fertilizer is 0.2 while the elasticity of livestock output with respect to animal feeds is 0.6. The production effects of basic inputs, notably land, capital and labor are all positive and statistically significant. The second finding is that social interactions have large effects on demand for farm inputs and on their returns. Finally, simulation results show that increasing farm output through application of productivity-enhancing inputs such as fertilizers and animal feeds can contribute significantly to closing the poverty gap in the study area.