Analyzing the determinants and the effects of income diversification in rural Ethiopia

This study analyses the determinants and effects of income diversification in rural Ethiopia using data from various rounds of the Ethiopian Rural Household Survey. The survey incorporated four big regions of the country which represent the majority of the country’s population. A double censored Tobit model is applied to analyze the initial determinants of income diversification in rural areas. To examine changes over time a fixed effect model is applied. Finally, an indirect approach was used to explore the effect of income diversification on total income of the household. Based on the results of the analysis human capital, education, access to credit and other private assets helped increase the engagement of the household in income diversifying activities. The existence of access to credit and savings are the other variables that have an impact on household’s ability to diversify income. The impacts of household characteristics and farm size are also analyzed. In a nutshell, polices that aim to enhance income diversification need to consider these different factors that affect the lives of rural household by affecting their income diversification strategy.