Farm Investment and Off-Farm Income - A Study of Farms in Alabama

Abstract

This thesis examines the effect of availability of internal finance, net farm income, and net off-farm household income on farm investment. It presents a detailed review of previous studies, develops and estimates an empirical model of farm investment using annual data from the Alabama Farm Analysis Database. The results show that the effect of internal finance on farm investment is positive and statistically significant for the whole sample. Net farm income also has a positive and significant effect on farm investment. Moreover, the results indicate that the more income farm households earned from off-farm business, the more likely they were to invest it in the farm business. Finally, farm investment of financially constrained farms was more sensitive to the availability of internal finance than that of financially unconstrained farms. Internal finance has a significantly stronger effect on investment among smaller farms than among larger farms.