Impacts of prices and transactions costs on input usage in a liberalizing economy: evidence from Tanzanian coffee growers

Abstract

Abstract Despite improvements in production incentives, agricultural output in Africa remained sluggish through the 1990s. Low use of purchased inputs may be part of the cause of persistently low productivity in African agriculture. This article analyzes the roles of relative prices and transactions costs in explaining low use of chemical inputs among Tanzanian coffee growers. A sample selection model indicates that output prices exert great influence on input purchases and that both fixed and variable transactions costs affect input use decisions. Travel costs in input and output markets have distinct effects on input usage, implying distinct avenues for interventions to promote more intensive use of agricultural inputs.