Perpetuation of subsistence farming in Western Balkans: the role of factor market imperfections

The paper analyses the imperfections in output and factor markets in Kosovo that act as abarrier to farm commercialisation. On the one hand, agricultural households may not haveaccess to output market due to an underdeveloped downstream sector. On the other, localproducers might not be preferred to importers as their production level is small with avariable quality due to constraints in factor markets.Data from the Agricultural Household Survey 2005 are used. A conceptual framework isdeveloped on the basis of a household model where non-separability results from a“wedge” between purchase and sale prices due to transaction costs. The share of the outputsold in the total value of output is regressed over a set of explanatory variables. A truncatedregression is employed due to the high percentage of the dependent variable having thevalue of zero. Many of the observations do not contain all three factor prices - land rent,wages and interest. For this reason three separate regressions are run, each containing oneof the prices.The model including wages is non-separable. Households with more members sell less asthey have preferences for household needs. This calls for active rural development andeducational policy which can create labour opportunities for agricultural households.