This paper investigates whether human capital affects the productivity and labor allocation of rural households in four districts of Pakistan. We find that households with better educated males earn higher off-farm income and divert labor resources away from farm activities toward nonfarm work. Education has no significant effect on productivity in crop and livestock production. The effect of human capital on household incomes is partly realized through the reallocation of labor from low productivity activities to nonfarm work. Female education and nutrition do not affect productivity and labor allocation in any systematic fashion, consistent with the marginal role women play in market oriented activities in Pakistan. As a by-product, our estimation approach also tests the existence of perfect labor and factor markets; this hypothesis is strongly rejected.

Marcel Fafchamps is an assistant professor of economics at Stanford University. Agnes R. Quisumbing is a researcher at the International Food Policy Research Institute in Washington, D.C. The authors benefitted from conversations and comments from Harold Alderman, Elizabeth King, Takashi Kurosaki, Bénédicte de la Brière, Dean Jolliffe, Guilherme Sedlacek, two anonymous referees, and from participants at seminars at IFPRI and in the University of California at Irvine. The research assistance of Sumiter Broca and Niny Khor is gratefully acknowledged. The authors acknowledge financial support from the United States Agency for International Development, Office of Women in Development, Grant Number FAO-0]00-G-00-5050-00, on Strengthening Development Policy through Gender Analysis, and thank IFPRI for making the data available. The data used in this article can he obtained from the International Food Policy Research Institute.