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An evaluation of subsidy policy impacts, transient and persistent technical efficiency: A case of Mongolia


Agricultural sector is the backbone of economy in an developing country. Farm households living in rural areas are particularly small-scale farmers and mainly rely on agriculture. Agriculture sector is the highly supported sector by governmental agencies in Mongolia. Although the subsidy–efficiency relationship has been extensively studied in other country contexts, limited studies have discussed that how farm efficiency and productivity are influenced by subsidies; in all studies subsidies are treated as exogenous. In order to fulfill the research gap, this paper specifically analyzes the subsidy payment effects on technical efficiency (TE) of wheat farmers in Mongolia. An unbalanced farm-level data of central arable region farmers from 2013 to 2018 were utilized in this study. We use a four-component stochastic frontier analysis approach that specifically separates the persistent and transient components, by controlling the heterogeneity. The findings of production frontier results indicate that wheat sown area, seed and labor were the main driving inputs for production growth. The investment in machinery has no impact on the output with insignificant technical changes. The overall estimated mean TE was 60% and mean persistent and transient TE were 0.778 and 0.765 respectively, that implies the possible growth in production without increasing the inputs under current technology. Our results further reveal that cash incentives and soft loans for the purchase of inputs have positive affect on overall TE and its transient components. The farm households technical skills toward efficient use of inputs and farming practices need to be improved. The government should take necessary measures related to technology innovations and disaster risk management and further promote the current subsidy policy, efficiency and technical up-gradation in wheat farming.

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Fig. 1


  1. 1.

    can follow either truncated, half-normal or exponential distribution.

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    the true fixed-effect or true random-effect model, which separate firm heterogeneity from inefficiency.

  3. 3.

    model that separate persistent and time-varying inefficiency.

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    As stated in Battese (1997), dropping these observations or substituting these values by using the value of one /or arbitrarily small number greater than zero/ then the procedure may result in seriously biased estimators of the parameters in the production function.

  5. 5.

    There are four crop-farming regions. Among these regions, the central region has the most convenient climate and geographical condition for wheat growing.

  6. 6.

    consumer price indices with 2010 as the base year was used to express all values in real terms.

  7. 7.

    For more detail about systems, see the “Soil Bulletin”; FAO (2013). The latter three systems are all considered as conservation tillage.

  8. 8.

    However, the farm heterogeneity is taken into account.

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    In case of the households, manager is the head of the household.


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Ganbold, N., Fahad, S., Li, H. et al. An evaluation of subsidy policy impacts, transient and persistent technical efficiency: A case of Mongolia. Environ Dev Sustain (2021).

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  • Crop farming
  • Persistent efficiency
  • Stochastic frontier analysis (SFA)
  • Time-varying efficiency
  • Subsidy policy