Determinants of Time Allocation to Rural Non-Farm Activities in Central America: The Role of Infrastructure and EducationI

We estimate a bivariate Tobit model to find the main determinants of time allocation to rural nonfarm employment (RNFE) among rural households in four Central American countries: ElSalvador, Guatemala, Honduras, and Nicaragua. The main effects stem from gender and schooling of the household head, as well as access to infrastructure, with evidence of infrastructure complementarities, i.e. we identify increasing share of nonfarm activities when the household has simultaneously more than one infrastructure. Households from the poorest income quartile would allocate between 3 (Guatemala) to 8 (El Salvador) additional hours to nonfarm activities if they increase their access from 0 to 2 types of infrastructure. This apparently small change in time allocation (substituting time in farm by time out of the farm, leaving leisure intact) would have non-negligible impacts in income, which would increase by 6% in Guatemala and 11% in El Salvador. Moreover, infrastructure access variables are positive for all income quartiles, but the marginal effect is positively correlated with income, i.e. the poor would benefit less than the rich. Finally, the model also shows an inverted U-shape in the relationship between the expected number of hours in RNFE and income. The more the households specialize in agriculture the less time they allocate to RFN. The richest households (roughly the top 1%) specialize in agriculture and thus allocate less time (zero in the case of El Salvador and Guatemala) to RNFE.