The nexus of income diversification and welfare: Empirical evidence from Ethiopia

Abstract

Income diversification plays an important role in addressing the adverse effects of climate and market failures. The study analyzes the impact of income diversification on household welfare. A two-round plot-level survey panel data comprising 1708 observations was used for the analysis where a total of 900 households were selected by using multistage sampling procedures and interviewed in 2010, of which 864 respondents were re-interviewed in the 2013 survey period with the same questionnaire. Results show a household income of about 76% is primarily from agriculture, although diversification levels increased in 2013. While fragmented poverty prevailed in the study area, significant improvements were observed over time. Econometric analysis results confirm that mainly female-headed households and households with higher education levels follow income diversification. Cultivated farm size was also found to encourage diversification. The results further show that income diversification has a positive influence on income while reducing the propensity of poverty. Furthermore, variables like farming experience, gender dependency ratio, cultivated land size, livestock, crop diversification and agroecology are important factors influencing both vulnerability and poverty levels. Interventions to address these issues by increasing the contribution of income diversification and improving household welfare are relevant.