This paper examines the impact of an increase in volume of chemical fertilizer on the allocation
of labor between nonfarm and farm sectors in rural Vietnam during the period 1993-1998. We
use rigorous method – instrumental variables approach to document the evidence. The study
shows that higher volume of chemical fertilizer due to lower price of chemical fertilizer reduces
the employment of rural households in nonfarm sector and increases the participation in farm
activities. We document that larger volume of chemical fertilizer creates the incentives for
households with small agricultural land to work more in farm activities.