Determinants of Non-farm Micro and Small Enterprise Participation in Rural Ghana

Abstract

The non-farm sector is critical for the socio-economic development of Ghana especially the rural poor. Literature suggest that people engage in non-farm enterprises as a way out of poverty or a survival strategy, perhaps as a substitute for the landless. This paper analyses the determinants of individual participation in non-farm enterprises and the intensity of participation. The paper uses EGC/ISSER Socio-Economic Panel Survey data collected in 2009. The paper estimated the determinants of participation using a probit model and then estimated the intensity of participation using a truncated regression model. The results indicate that majority of women (about 73%) are engaged in non-farm enterprises in rural Ghana. The study found that females tended to participate more in non-farm self-employment and are less likely to participate in non-farm wage employment. The results further showed that individual characteristics such as the gender of the individual, being head of a household, being the spouse of a household head, having formal education, age of the individual, having access to credit, possessing a mobile phone, per capita landing holding and ownership of livestock influenced the participation of individuals in self-and wage employment. Results from truncated regression model for self-employed enterprises showed that having access to mobile phones, owning more livestock and electricity are important in determining the intensity of participation in self-employed enterprises. For wage-employment, being a household head, spouse of household head, having access to mobile phone and owning more livestock increased the number of days working on wage employment. Education is relevant for employment in the non-farm sector especially wage-employment. Government should play a lead role in making formal education accessible to the rural people. Deliberate policies should focus on addressing critical factors such as access to credit, mobile phone, electricity and education which are relevant for increasing participation intensity in rural enterprises.