Non-farm diversification and its impacts on income inequality and poverty: evidence from rural Ethiopia

Abstract

This research investigated whether non-farm income diversification increases overall income equality and decreases poverty in rural Ethiopia or not. It used a four-wave panel data from the Ethiopian Rural Household Survey over the period 1994-2009. The impacts of non-farm income on inequality and poverty were analysed using Gini-coefficient decomposition, fixed, random, and probit models. The results revealed that in general, non-farm income has a positive impact on rural households ' welfare with an inequality reducing effect. These results have important policy implications and suggest that the non-farm sector can provide a feasible option to tackling rural poverty and vulnerabilities in Ethiopia, especially at a time when agriculture is increasingly becoming precarious due to the changing climate.

Keywords: Non-farm diversification, inequality, Gini-decomposition, rural Ethiopia