To what extent should farm households diversify? Implications on multidimensional poverty in Ghana

Abstract

Livelihood diversification is a widely used approach to address economic disruptions and as a measure to mitigate poverty. Despite a raging debate about whether households should specialize or diversify their livelihood activities in order to minimize poverty, a number of country-level studies suggest greater diversification of livelihood activities, although there is insufficient evidence to support these positions. The livelihood decision-making of the farm household is not limited to choosing between specialization and diversification, but rather to choosing a combination of both. This raises the question of the degree of diversification that leads to the best outcomes in poverty reduction. Using the 2017 Ghana Living Standards Survey (GLSS7) from 14,009 households, we assessed the role of livelihood diversification in reducing multidimensional poverty in Ghana. The study used the Margalef index to construct livelihood diversification matrix, while the quantile regression model applied to estimate the determinants of livelihood diversification. We also used the Alkire-Foster multidimensional poverty framework to generate a multidimensional poverty index as a household poverty indicator, and we estimated the impact of each quantile of livelihood diversification on poverty using the Inverse-probability-weighted Regression Adjustment (IPWRA) estimator. The significant impact of diversification over specialization reflects the results of the study, but at the lower and middle quantile for crop diversification and higher quantile for income diversification. Thus, while diversification lessens household poverty, the extent and dimension of diversification is important. Therefor, sustained promotion of involvement in non-farm income-generating activities is essential to poverty reduction.