Risky Business? Rural Entrepreneurship in Subsistence Markets: Evidence from Burundi

Abstract

Present-day development theory and practice highlight the potential of micro-entrepreneurship for poverty reduction in rural Africa. At the same time, subsequent studies show that entrepreneurial propensity is not often exhibited by subsistence farmers. Basing our analysis on a cross-section dataset from Burundi, we analyze the entrepreneurial livelihood strategies of rural households: diversifying crops, processing food for sale, supplementary wage work, and non-agricultural employment. We find that the farmers living close to subsistence level are more risk averse in their decision making and less likely to pursue these opportunities. Further, we show that risk aversion is negatively correlated to employment diversification, while there is no significant correlation for the other strategies. Employment diversification is indeed the most risk-bearing strategy that the subsistence farmers cannot afford as adverse outcomes would endanger their households’ survival. Our results also suggest that this risk effect is mitigated by the participation in formal and informal networks.