This study assesses how growing land scarcity relative to family labor is influencing farm household decisions to trade in agricultural land and labor markets to improve their livelihood. Using the farm household model, I analyze decisions to rent-in land or hire out labor among smallholders in Malawi. I use data from two rounds of a nationally representative balanced-household panel and apply a systems approach to jointly estimate land rental and labor market decisions while controlling for simultaneity and unobserved heterogeneity. The results indicate that the falling owned-land-to-labor-endowment ratio can push households to participate in either land rental or seasonal agricultural labor markets. However, the probability of hiring out labor for casual work and short-term gains decreases when potential tenant households rent-in land. Based on asset-wealth-to-labor-endowment ratios, wealthier households are more likely to rent-in land while poorer households, including most smallholder households, are more likely to hire out labor. These results suggest higher friction in the land rental market compared to the agricultural labor markets and liquidity constraints dictating what is necessary to support agricultural operations and household needs. Accordingly, agricultural policy in Malawi should aim to reduce friction in factor markets.
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