Determinants of Income Diversification in Rural Ethiopia: Evidence from panel data

Abstract

The aim of this study is to examine the determinants of income diversification in rural Ethiopia. Rural households allocate their work time between farm and of-farm activities to have secure income (consumption) for their family members. However, it is not clear why some households participate only in farm activities while others engage in both. Using survey data collected from 1500 rural households in 1994 and 1997, this study investigates the impacts of demographic, economic, and risk factors on participation and intensity of off-farm activities. The results of the study show that families with high dependency ratio, female household heads, high livestock value, and poor quality of land participated less in off-farm activities. Competition between off-farm and farm activities and effects of seasonality were more apparent from the intensity results than from participation. Increased crop production and sale of part of production during the main harvest season led households to engage less in off-farm activities. The results also confirm that off-farm activities were practiced as a means of subsistence when crop production fails; otherwise farmers abandon off-farm activities.