Does fertilizer adoption enhance smallholders’ commercialization? An endogenous switching regression model from northern Ethiopia

Abstract Background Theory of development economics emphasizes how individuals transit out of poverty. Adoption of improved agricultural technologies is one of the means that enables to facilitate the transition in developing countries. The application of yield-enhancing technologies is potentially likely to produce crop income more than what farm households consume compared to farming activities with more traditional production techniques. Inorganic fertilizer is one of modern agricultural technologies that can enhance agricultural productivity. However, the increase in crop production by itself is insufficient to improve the welfare of farm households; rather, it has to be linked to the market. Therefore, I am motivated to evaluate the potential impact of adoption of inorganic fertilizer on smallholders’ commercialization as technological change enhanced land-use intensification and crop productivity in a land-scarce economy like in rural Tigrai, northern Ethiopia. Methodology The study utilizes cross-sectional farm household data collected in the 2014–2015 cropping season from a randomly selected 626 farm households in rural Tigrai, northern Ethiopia. Plot-level productivity is estimated using OLS with a control function approach. The causal impact of fertilizer adoption on smallholders’ commercialization is estimated using an endogenous switching regression model to control for selection problems associated with adoption decision. While factors affecting the probability and extent of inorganic fertilizer adoptions are analyzed using a double-hurdle model (hurdle 1 for probability of adoption and hurdle 2 for the extent of adoption). Results The double-hurdle results show that large family size, a higher number of male and female adults affect positively and significantly adoption probability of inorganic fertilizer, while long plot distance, households headed by illiterate are key constraints for inorganic fertilizer adoption. Fertilizer adoption has positive and significant effect on plot-level productivity. Finally, adoption of inorganic fertilizer has a strong and positive impact on smallholders’ commercialization through productivity gain. Conclusion The finding of this study confirms the potential role of technology adoption in facilitating rural transformation as higher production from adoption of improved agricultural technologies translates into surplus products and greater ability to integrate with the output market.