Improving the effectiveness of rural development policy in Chile

In Chile, agriculture remains a key economic factor for rural development. Accordingly, the Chilean government, through the Agricultural Development Institute (INDAP), provides financial support for fostering entrepreneurship among small farmers to enable them to become more competitive in global markets. Despite this support, a declining number of farmers and an aging population are observed in rural areas. Most rural development programs focus on increasing competitiveness, whereas the stay-exit decision in agriculture is also affected by the characteristics and preferences of farmers and their families, and rural development policy. The overall objective of this dissertation was to provide technical and socioeconomic information for improving the effectiveness of rural development programs, which are seen as the tool for stopping rural migration. To accomplish this objective, first an analysis of the role of socioeconomic variables in the stay-exit decision in farming was made based on efficiency theory, exit barrier theory, and life-cycle theory. The association of potential factors with the stay-exit decision was identified using a probit model. This dissertation suggests that, besides the technical characteristics of the farming, which have been traditionally addressed in developing countries, rural development policies should focus on (i) farmer characteristics, i.e. age, gender, and expectations; (ii) farming system, i.e. multivariate production; and (iii) social aspect of rural society, i.e. membership of farmer associations. In addition, technical, economic, and social data was used to explore the scope for improving the technical efficiency of the sample farms and to identify the variables influencing technical efficiency. Two-stage models were performed to estimate (i) the technical efficiency and (ii) the input-specific technical inefficiency with which these farmers operate, and to identify the association of potential factors with either farm-level technical efficiency or input-specific technical inefficiency. Results for farm-level technical efficiency showed that farmers could reduce their input use by 30%. When measuring input-specific technical inefficiency results showed that the input use can be reduced by 26% (land use) to 37% (livestock use). This thesis also analyzed the effectiveness of existing rural development programs in Chile by comparing the opinions of experts regarding the effectiveness of these programs in achieving the main INDAP goals and the budget allocation among rural development programs. Results showed (i) a discrepancy between the allocation of the INDAP budget and the effectiveness of the rural development programs in achieving the overall INDAP goal; and (ii) that some INDAP programs are less effective in achieving INDAP goals. This suggested possibilities for reducing the current number of professional and technical advice programs and reallocating budget from less effective programs to programs that are more effective in the achievement of INDAP goals. Hence, designing new programs that focus on improving the quality of social and organizational capital could increase the achievement of INDAP goals.