Abstract
This study investigates the determinants of income diversification for non-farm activities using a two-part model and a breakdown of income inequality using Gini and regression-based inequality decompositions using data from the Ethiopian Rural Household Survey (2009). Results of the Gini decomposition show that the largest share of income came from farm income followed by non-farm income. Non-farm income was distributed more equally compared to farm income. The relative contribution of each source of income to the overall income inequality is indicated as: farm income 0.44, non-farm 0.05 and off-farm 0.03. Non-farm wage employment accounted for the largest share of non-farm income and made the largest contribution to overall income inequality. Moreover, non-farm wage employment tended to decrease income inequalities while non-farm self-employment had the opposite effect on inequalities. The results of the determinants of diversification show that female-headed households were more likely to participate in rural non-farm activities and gather higher incomes from non-farm activities as compared to male-headed households and that the level of non-farm incomes increased with an increase in formal education. Our findings suggest that although most rural households participated in the farm sector, rural development policies aimed at reducing inequalities should pay attention to non-farm income generating activities. Policies directed at the rural non-farm economy can be an additional option for minimizing problems associated with droughts, shortage of land and poverty.
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Notes
- 1.
This data was made available by the Economics Department of Addis Ababa University, the Centre for the Study of African Economies, University of Oxford and the International Food Policy Research Institute. Funding for data collection was provided by the Economic and Social Research Council (ESRC), the Swedish International Development Agency (SIDA) and the United States Agency for International Development (USAID); the preparation of the public release version of this data was supported, in part, by the World Bank. AAU, CSAE, IFPRI, ESRC, SIDA, USAID and the World Bank are not responsible for any errors in the data or for its use or interpretation.
- 2.
Constitutes income earned from own-business activities such as weaving/spinning, milling, handicrafts including pottery, trade in grain/general trade, income from services such as traditional healer/religious teacher, transport (by pack animals) and the like.
- 3.
Non-farm wage income is composed of income earned from the following sources as reported in the data: Professional (teacher, government worker), skilled laborer (builder, thatcher), soldier, driver/mechanic, unskilled non-farm worker, domestic servant and guard.
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Gutema, G. (2019). Diversification into Non-Farm Activities in Ethiopia: Determinants and Income Distribution Effects. Application of a Two-Part and Regression Based Inequality Decomposition. In: Nilsson, P., Heshmati, A. (eds) Efficiency, Equity and Well-Being in Selected African Countries. Economic Studies in Inequality, Social Exclusion and Well-Being. Springer, Cham. https://doi.org/10.1007/978-3-030-11419-0_11
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