Determinants of non-farm enterprise diversification in rural Ethiopia

Abstract

PurposeThis study aims to analyze the factors that determine non-farm enterprise diversification among farm households in Ethiopia. It extends the analysis by examining enterprises and using pooled data, which has the capacity to generate more accurate outcomes. The existing empirical evidence has focused on all non-farm activities, based on single period, single region data. Much of the existing empirical evidence is based on small-scale and location-specific sample surveys that do not demonstrate the characteristics of aggregate populations.Design/methodology/approachThe empirical analysis was conducted using a quantitative method. To cater to the censoring nature of participating in non-farm enterprise activities, a panel data double-hurdle model is used to a representative sample of 3,594 Ethiopian rural households.FindingsThe study finds that the age of household head, household size, distance to the market, social capital and access to credit, are determinants for owning one or more non-farm enterprises. The level of income from these enterprises is then determined by the age and education level of the household head, household size, agricultural equipment, distance to markets and access to credit.Practical implicationsThis study brings to light factors that influence households to participate in non-farm enterprises and the determining factors for the income level.Originality/valueNon-farm activities are an important source of household income and a driver of development. This paper provides empirical evidence on factors that determine enterprise ownership using panel data.