Econometrics Problem Set 3

Due December 22nd

Dainn Wie
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GRIPSAY2021@GMAIL.COM

December 4, 2021

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Do subsidized seeds and fertilizers improve farm value added?

Recent research on agricultural performance in developing countries has important implications for
policies of subsidized provision of agricultural inputs, such as seeds and fertilizers and their effects on
productivity and farmer incomes. In this problem set you will take a look at some empirical evidence
on the effectiveness of subsidized farm input programs, based on the experience of the Indian state of
West Bengal during the last two decades of the twentieth century, when it witnessed rapid growth in
food grains production and yields.

Subsidized Farm Input Program

During 1982-1995, local government offices of the agriculture department of the West Bengal state
government delivered subsidized agricultural mini-kits to farmers containing mainly seeds (rice, potato
oil seed, and other vegetables), some fertilizers, and insecticides.

West Bengal Area

West Bengal is a state in eastern India with a population exceeding 80 million, over two-thirds of
which live in rural areas. Approximately half of the rural population owned cultivable land and were
engaged in farming in the early 2000’s. The remaining population relied on employment in agricultural
and non-agricultural labor markets. With regard to levels of per capita income or indices of human
development, West Bengal ranks in the middle among Indian states.

1
1. Data analysis:
Variables in the data set, “mini-kits.dta” are defined in the following Table 1. Data has farm-year
panel structure which tracked each farm for fifteen years from 1982 to 1995. A farm corresponds
to an operational holding cultivated by a single household, with multiple plots and crops.

• Estimate the regressions in Table 1 and Table 2 and fill in the empty entries. Use “reghdfe”
command for the estimation of regression (4) and (5). You may write in the entries by hand
or type them using the .doc electronic version of the table.
• Use robust standard error to estimate standard errors in regressions (1)-(3). Use HAC SE
within each farm to estimate standard errors in regressions (4) and (5).
• Note: for these regressions, use all observations. The sample size in each regression
may change due to missing values in certain variables or singleton ovservations in
fixed effects estimation.

2. Use estimated results in Table to answer the following questions.

(a) Use regression (1) to interpret the coefficient of ”Mini − kits”. Do you think ”Mini − kits”
has large effect on ”Value added” in real world terms?
(b) Use regression (3) to interpret the coefficient of “Log price of rice”.
(c) Suggest variables which varies over time, but varies little or not at all within each farm.
(d) Please briefly discuss why the magnitude of coefficient on ”Mini − kits” increased so much
in regression (4) compared to that in regression (3).
(e) Compare regression (4) and (5). Please discuss why coefficient on ”Mini − kits”declined
in regression (5) compared to that in regression (4).
(f) Why is it desirable to use HAC SE within farm in regression (4) and (5)?
i. to address serial correlation of error terms as farmers in the same village interact/affect
each other.
ii. unobserved factors affecting each farm’s productivity could be correlated over time.
iii. a large-scale natural disaster which affected whole of West Bengal could have long-
lasting impacts on farm productivity over time.

2
 Table 1. Data Description File: mini-kits.dta

Variable Definition
lnrvaladpa_cpi Log value added per acre of farm adjusted by CPI
h_ceallkits The (cumulative) number of mini-kits per household
lnrnyrb Log of annual rainfall in nearest recording center (village)
lnrp_rice Log price of rice received by a firm (farm)
Total Cropped Area Total Cropped Area (farm)
farm Farm id
year Year

STATA Hints

Stata Command Description

global controls xvar1 xvar2 xvar3
reghdfe yvar xvar $controls,
absorb(panel1 panel2) cluster(panel1)
outreg2, using name.doc, replace dec(3)
ctitle(OLS) addtext(Robust SE, Yes)
title(Table1)
outreg2, using name.doc, append dec(3)
ctitle(FE) addtext(Robust SE, Yes)
Creates a new group variable controls which includes all three
variables xvar1, xvar2, and xvar3. When you add this
“controls” as a regressor, please put “$ in front of the group
variable name.
Commands for fixed effects estimation when two panel
dimensions’ fixed effects are controlled. The standard errors
will be clustered within each “panel1”.
Outreg2 can be used when you export estimation results into
table. This is the example command for the first regression in
the table. dec(3) indicates decimal place up to three.
ctitle(OLS) is column title. addtext will add extra rows where
you can put extra description about each regression.
This is the example command for the first regression in the
table.