Household Income Diversification Strategies, Welfare and Child Nutrition in Uganda: A Dynamic Panel Analysis 2005–2020

Abstract

Many of the studies on households and people’s welfare dynamics in Uganda have been preoccupied with poverty lines and welfare indices estimation, particularly at the macro level. Little attention has been paid to the impact of livelihood diversification strategies on household welfare and health outcomes (i.e. child nutrition) for both rural and urban dwellers. Thus, this study examines the impact of livelihood (i.e. income) diversification strategies on household welfare and child nutrition. Eight waves of the Uganda National Panel Survey (2005/06–2019/20) dataset collected by the Uganda Bureau of Statistics (UBOS) with the support of the World Bank are utilised for this purpose. An instrumental variable approach implemented through a two-stage residual inclusion (2SRI) technique is applied in which alternative correlated random effects (CRE) and fixed effects models are estimated, these two techniques enabled us to address the endogeneity problem associated with livelihood diversification by including a generalised residual among the regressors and also including appropriate list of instruments in the latter. The findings from the study show that indeed diversified households enjoy higher levels of consumption and thus livelihood diversification strategies are welfare-improving. Second, livelihood diversification is also found to improve child nutrition status. By and large, the results point to the fact that households should at least run a diversified means of livelihood since this offers a feasible way of shielding households against risks and also coping and adapting to shocks among rural and urban poor households.