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The Future of Smallholder Farming in Eastern Africa - Uganda ...

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Decision to terrace and terrac<strong>in</strong>g <strong>in</strong>tensity<br />

A censored Tobit is used to model adoption <strong>of</strong> terrac<strong>in</strong>g technology and the <strong>in</strong>tensity <strong>of</strong><br />

terrac<strong>in</strong>g on the decision to terrace <strong>in</strong> the first place. This is because <strong>in</strong>formation on the<br />

dependent variable from population is limited <strong>in</strong> its range, especially for the nonadopters.<br />

Observations on the dependent variable, correspond<strong>in</strong>g to known values <strong>of</strong> <strong>in</strong>dependent<br />

variables, cannot be observed or are miss<strong>in</strong>g. Exclusion <strong>of</strong> nonadopters results <strong>in</strong> sample<br />

selection bias and attendant biases <strong>in</strong> the estimated coefficients (Heckman 1979; Feder and<br />

Umali 1993). Estimation <strong>of</strong> Ord<strong>in</strong>ary Least Squares (OLS) with a dichotomous dependent<br />

variable would be <strong>in</strong>appropriate because result<strong>in</strong>g parameters would be <strong>in</strong>efficient due to the<br />

heteroscedastic structure <strong>of</strong> the error term.<br />

This model makes estimates consistent and is specified as<br />

TERRACE = f ( SLOPE,<br />

TENURE,<br />

DISTH,<br />

LCROPAC,<br />

MEDENS,<br />

MEDIV,<br />

PARTIC,<br />

COGNIT,<br />

EDUC,<br />

WEALTH,<br />

SEX , FAROR,<br />

HHS,<br />

FAMCA,<br />

INC,<br />

AGE,<br />

ACCESCOS,<br />

ERODE,<br />

CWORK,<br />

PERCEP,<br />

LOC)..............................................(2)<br />

Social capital, terrac<strong>in</strong>g <strong>in</strong>tensity, and crop productivity<br />

<strong>The</strong> impact <strong>of</strong> social capital on crop productivity and vice-versa may or may not be direct.<br />

Alternatively, some factors may simultaneously affect terrac<strong>in</strong>g <strong>in</strong>tensity and crop<br />

productivity, <strong>in</strong> which case, we are deal<strong>in</strong>g with a simultaneous equations model <strong>in</strong> that two<br />

or more endogenous variables are determ<strong>in</strong>ed jo<strong>in</strong>tly with<strong>in</strong> the model, as a function <strong>of</strong><br />

exogenous variables, predeterm<strong>in</strong>ed variables, and error terms. This simultaneity <strong>in</strong>duces<br />

correlation between the regressors and error terms <strong>of</strong> each equation <strong>in</strong> the systems, thus<br />

caus<strong>in</strong>g OLS to be <strong>in</strong>consistent <strong>in</strong> estimat<strong>in</strong>g parameters.<br />

As a result, the ma<strong>in</strong> estimat<strong>in</strong>g technique that is used is the Two-Stage Least Squares<br />

(2SLS). This is essentially a s<strong>in</strong>gle-equation method, which does not use all the <strong>in</strong>formation<br />

conta<strong>in</strong>ed <strong>in</strong> the detailed specification <strong>of</strong> the rest <strong>of</strong> the model. Although, <strong>in</strong> pr<strong>in</strong>ciple,<br />

<strong>in</strong>formation on the complete structure, if correct, will yield estimators with greater asymptotic<br />

efficiency than that atta<strong>in</strong>able by limited-<strong>in</strong>formation methods (Green 2000), full <strong>in</strong>formation<br />

methods require extensive data, which <strong>in</strong> most cases is not available. In addition, they <strong>of</strong>ten<br />

suffer from misspecification problems.<br />

S<strong>in</strong>ce we are deal<strong>in</strong>g with censored variables, the Heckman Two-Stage Estimation<br />

Technique is used (Maddala 1983). In this procedure, an <strong>in</strong>verse mills ratio (IMR) is<br />

computed and then <strong>in</strong>cluded as a separate explanatory variable <strong>in</strong> the estimation process.<br />

<strong>The</strong> Two-Stage Least Squares equation is given below:<br />

TERRACE = f ( SLOPE,<br />

TENURE,<br />

DISTH,<br />

LCROPAC,<br />

MEDENS,<br />

MEDIV,<br />

PARTIC,<br />

COGNIT,<br />

EDUC,<br />

WEALTH,<br />

SEX , FAROR,<br />

HHS,<br />

FAMCA,<br />

INC,<br />

AGE,<br />

ACCESCOS,<br />

ERODE,<br />

CWORK,<br />

PERCEP,<br />

LOC,<br />

IMR)......................................(3)

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