Title_ The Determinants of Non-Farm Income Diversification in Rural Ethiopia

Author_ Zerihun Berhane WELDEGEBRIEL, Giuseppe FOLLONI & Martin PROWSE

Pages 109-130

Abstract_ Diversification has long been viewed as a risk minimization strategy in the face of increasing climatic andeconomic risks in developing countries. This paper examines the determinants of non-farm income diversification in rural Ethiopia for a four-wave panel of 1240 households from the Ethiopian Rural Household Survey over the period 1994–2009. The paper makes a conceptual distinction between non-farm and off-farm income and uses fixed and random-effects models to control for unobserved characteristics. The results suggest that the variables that determine non-farm diversification—consumption per capita and livestock holdings—belong to pull factors and reflect a strategy by wealthier households. Coupled with instrumental variable estimations to ascertain the direction of causality, these findings lend support to the argument that the main motivation for increasing non-farm diversification is likely to be

accumulation.

Keywords_ Non-farm diversification, Fixed and Random-effects, Rural Ethiopia