The Determinants And Impacts Of Income Diversification In Rural Ethiopia The Case Of Communities In Southern Nations Nationalities And Peoples Regional State

This study examines the determinants and impacts of rural household income diversification.rnThe analysis of this study is based on data taken from “Ethiopian Rural HouseholdsrnSurveys”(1997 and 1999) conducted by the Department of Economics, Addis AbabarnUniversity. To analyse the determinants of household's choice among different livelihoodrnstrategies and the level of income diversity, multinomial logit model that corrects selectionrnbias was estimated for five distinct livelihood strategies. The effects of income diversificationrnon rural equity and consumption insurance against idiosyncratic income shock were rnnalysed using Gini decomposition technique and linear regression model, respectively.rnThe results indicated that the asset endowment of the household has a significant effect onrnhouseholds’ choice of livelihood strategy and the level of income diversity. They also showrnthat the effect of asset on livelihood choice and income diversity is dependent on the type ofrnasset as well as on the particular livelihood strategy. Empirical evidences revealed that farmrnland holding, distant to market, involvement in cash crop production, ox holding, use ofrnagricultural extension and possession of senior secondary education by head lower thernlikelihood of involvement in livelihood diversification.rnOn the other hand, labour supply, livestock holding, junior secondary education attainment of head and age of head increase the odds of pursuing livelihood diversification relative to purefarm strategy. The variation in level of income diversity for more attractive strategies was explained by access to credit, livestock endowment, farmland size, transfer income,rninvolvement in cash crop production, and household composition (number of adult male andrnfemale members). Similarly, the variation in level of income diversity for easy entry strategies was explained by laobur supply and frequency of market. Generally, the study shows the importance of liquid assets (livestock, cash crop, credit, transfer income), access to markets, demographic characteristics (composition, gender, size), and education in choice of different livelihood strategies and their effects on level of income diversity.rnThe analysis of Gini decomposition technique revealed that the rural equity effect ofrndiversification is dependent up on the type of livelihood strategy, level of income diversityrnand village characteristics. Regarding the effect of sources of income, wage employment and off farm business have inequality increasing effect as opposed to crop farming and livestock rearing which have inequality decreasing effect. The finding also showed that higher level of income, lower rural inequality, better consumption smoothing could be achieved at higher level of income diversity. Again, the findings indicated that the impacts of diversification on income, rural inequality and consumption smoothening vary across livelihood strategies. Our estimation results for consumption insurance showed that households who involved farm easy off farm strategy are the most vulnerable to income shocks followed by pure-farm strategy.

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