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The Effect of National Policies and Labor Market on Land Use Decisions in Developing Countries: An Application of Maximum Simulated Likelihood to System of Censored Acreages with Panel Data

By Bayou Demeke and Ian Coxhead

Abstract

This paper estimates land use responses of households to relative output prices and wages, using panel data from the Philippines. We present multi-output profit maximizing model to elicit the role of relative prices on land allocation between crops and fallowing. We estimate systems of random effects Tobit acreage equations using maximum simulated likelihood technique. The results show that rising return to labor and management intensive crop reduces land expansion. In addition rising wages also reduce agricultural expansion. The results reveal a potential role for market based policies in shaping environmental outcomes in developing countries.Land Use, Maximum Simulated Likelihood, Panel Data, Tobit, Philippines

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