The determinants of non-farm income diversification in rural Ethiopia

Zerihun Berhane Weldegebriel, Giuseppe Foloni, Martin Prowse

Research output: Contribution to journalArticlepeer-review


Diversification has long been viewed as a risk minimization strategy in the face of increasing climatic and economic 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.
Original languageEnglish
Pages (from-to)109-130
JournalJournal of Poverty Alleviation and International Development
Issue number1
Publication statusPublished - 2015

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