| Small farmers in developing countries generally face constraints in credit and labor markets that affect their behavior towards soil conservation. The ample anecdotal evidence about the impact of these constraints on soil conservation is, however, ambiguous. The effect of increased access to off-farm employment was found to be sometimes positive and others negative, while the effect of more access to credit is not always significant. In both cases, the final impact depends on the interaction between direct and indirect effects, that can be of opposite directions. However, studies that analyze these issues within a rigorous theoretical framework that accounts for the dynamic nature of the optimization process are rare.;In this study a dynamic optimization model is developed to analyze how labor and liquidity constraints affect conservation and soil quality. The theoretical results indicate that the impact of relaxing market constraints depends on the relative strength of direct effects, relating to the impact of shadow prices on input use, and indirect effects, through the shadow value of soil quality, which are of opposite directions. Since labor and liquidity constraints likely affect conservation in opposite directions, but off-farm income also helps relax liquidity constraints, the final impact of increased off-farm employment also depends on the importance of each constraint. Eventually, determining the final impact on soil conservation is an empirical matter.;The empirical analysis uses data from a 1996 farm household survey in El Salvador and is carried-out separately for constrained and unconstrained farmers in order to test the model results. The tests strongly support the hypothesis that soil conservation is affected by labor and liquidity constraints, showing that access to off-farm employment decreases and more liquidity increases conservation when farmers are constrained, but have no effect for unconstrained farmers.;The results obtained in this study suggest that policies that promote rural economic activities that increase the demand for labor likely would have a negative impact on soil conservation. These negative effects could be attenuated by policies that encourage the development of credit markets which likely would increase conservation investments. Additionally, soil conservation programs would be more effective if they promoted labor-saving practices. |
