Crop commercialization, structural change and income inequality: Insights from smallholder farmers in rural Southeast Asia

• Structural change in agriculture plays an important role in the economic development of developing countries. • Crop commercialization has a positive correlation with the structural change. • An increase in commercialization can reduce income inequality in relative terms. • Policies on facilitating crop commercialization and supporting mechanization are suggested. Structural change in agriculture is an integral part of economic development in developing economies. The process of structural change is accompanied by adjustments within and outside agriculture, such as the development of mechanization and the shift to non-farm employment. We examine the correlations of crop commercialization with structural change and assess how the benefits of crop commercialization are distributed across farm and total income quantiles. We use a balanced panel of 2,867 rural smallholder farmers collected from Thailand and Vietnam, two middle-income countries in Southeast Asia for empirical analyses. Our panel includes three survey waves conducted in 2010, 2013, and 2016 with a total of 8,601 observations. Regarding the correlation of crop commercialization with structural change, our simultaneous equation model results show that crop commercialization is positively related to crop mechanization. The results of fixed-effects estimation with a control function approach indicate that an increase in crop commercialization has a positive correlation with non-farm employment. Besides, the results of unconditional quantile regression models suggest that an increase in crop commercialization leads to an increase of about 25.4% and 5.6% in per capita farm income of smallholders in the 10th and 25th quantile groups, while it increases the per capita total income of smallholders in the 10th and 25th quantile groups by about 10.2% and 5.7%, respectively. Hence, we recommend facilitating the commercialization of crops by smallholder farmers to stimulate the structural transformation of agriculture at the micro level and to reduce income inequality of smallholder farmers.