Table 6 reports the results from simple OLS and probit estimation. With labor productivity as the outcome variable (columns 1 and 2 in table 6), contract farming does not seem to have a significant effect on labor productivity, irrespective of the underlying sample.

**_<u>Table 6: Baseline Regression Results: OLS and Probit</u>_**

|<br>**Variable**|<br>**(1)**<br>**Random**<br>**sample**|<br>**(2)**<br>**Purposive**<br>**sample**|<br>**(3)**<br>**Random**<br>**sample**|<br>**(4)**<br>**Purposive**<br>**sample**|**(5)**<br>**Random**<br>**sample**|**(6)**<br>**Purposive**<br>**sample**|
|---|---|---|---|---|---|---|
||**ln Labor p**|**roductivity**|**Process u**|**pgrading**|**Product**|**upgrading**|
|Contract|0.165|0.0516|0.645*|-0.0269|0.665***|0.169|
||(0.150)|(0.0871)|(0.330)|(0.123)|(0.214)|(0.128)|
|VC|0.192|0.270***|-0.430|-0.0828|-0.375*|-0.175**|
||(0.124)|(0.0754)|(0.279)|(0.0823)|(0.206)|(0.0721)|
|Observations|1,204|2,250|854|2,111|1,075|2,166|
|R-squared|0.386|0.349|0.136|0.266|0.183|0.209|

_Note:_ Columns 1 and 2: OLS regression; columns 3 to 6: probit regression. Bootstrapped standard errors are in parentheses. Household characteristics (age of household head, education of household head, land area, and size of household) are always included. Country, region, and crop fixed effects are always included. *** p < 0.01, ** p < 0.05, * p < 0.1.

Participation in value chains—proxied by who the farmers sells output to—is positively correlated with labor productivity in the purposive sample.<sup>33</sup> Turning to process upgrading (columns 3 and 4) and product upgrading (columns 5 and 6) as outcome variables, the coefficient estimates now indicate that having a contract is significantly and positively associated with structural transformation in the random sample. In contrast, participation in value chains does not have a positive correlation with the planting technique or the quality of the planting material. Process upgrading and product upgrading are very specific forms of structural transformation, which require access to new inputs and knowledge that might only be provided through a contract rather than through participation in a value chain alone. On the one hand, according to the sample, most of the value chain participants also have a contract with their buyer, so contract farming already captures value chain participation. On the other hand, a contractual arrangement with a non-GVC participant is also likely to provide skills and inputs that will therefore increase the potential of upgrading.

However, the OLS and probit estimates are likely to be biased, because farmers self-select (and are self-selected by firms based on unobservable characteristics) into contract farming and value chains. In the following, we discuss the results from the PSM as a robustness check (table 7). The estimates do not show evidence that value chain participants experience higher labor productivity or upgrading in contrast to nonparticipants who are similar with respect to observable characteristics. Compared with the OLS results, this finding emphasizes the need to control for heterogeneity on the one side, but on the other side, it indicates that value chain participation alone may not trigger structural transformation. Related to this, we employ an alternative setting where contract farming is the treatment variable and find a positive but not significant effect on labor productivity and process and product upgrading in the random sample.<sup>34</sup>

> 33 Contract farming is still not significant in either specification when value chain participation is dropped from the estimation.

> 34 The results are not reported here to save space, but are available on request.

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