Determinants of participation in non-farm activities and its effect on household income: An empirical study in Ethiopia

Abstract

Undertaking non-agrarian income-generating activities to reduce overreliance on agriculture, production failures, and income fluctuations is a household-amenable, self-insurance mechanism, which provides employment opportunities and capital investment. This article examines the determinants of participation in non-farm activities and effect on household income. Heckman two-step procedure was used to analyze a three-wave survey data set captured from 3866 households. Crop failures, insufficient intake of food, household consumption expenditure, gender, family size, literacy, health status, farm animals holding, access to credit, total hired labor, cooperative membership and agricultural extension services were factors influencing household involvement in non-farm work. Furthermore, the findings establish that there is a decline in the likelihood of households headed by aged people, who tend to rely on subsistence farming to engage in alternative non-agrarian activities. The results of the analyses support the non-separability hypothesis of non-farm activities and household income; this implies that engaging in non-agricultural activities has a direct positive effect on household income. The omnipresence of non-agrarian income generating activities in agro-ecoregions requires inclusive rural development policies that focus beyond agriculture based on the recognition of the rural economic heterogeneity. Key words: Rural development, non-farm activities, household income, Heckman Two-Step model, Ethiopia.