Rural Nonfarm Sector and Poverty: Evidence from Some Villages of Amhara Region, Ethiopia

Abstract

This study examines the effect of poverty on participation and intensity of rural nonfarm sector (RNFS) in some villages of Amhara region of Ethiopia. Probit and censored-Tobit regressions were run on a pooled data of 366 random rural households from the last two rounds (2004 and 2009) of the Ethiopian Rural Household Survey. The results of the study reveal that poverty does have a significant effect on households’ participation in and income share of RNFS. Both participation and intensity are estimated to be higher for the poor. More specifically, compared to the non-poor, those who persistently fell into poverty throughout the five-year period are more likely to participate. Income share of RNFS is higher for households owning less number of oxen. Besides poverty indicators, controls such as credit, crop and labor prices as well as locational and time dummies are found as other significant determinants of both participation and intensity. The findings imply that rural intensification of the existing micro-credit schemes and improvement of rural institutions and infrastructure that promote the functioning of rural labor markets are crucial to initiate and deepen the engagement of the rural poor in RNFS.