The Dynamics of Livelihood Diversification in Ethiopia Revisited : Evidence from Panel Data

Block and Webb (2001) in food policy address the issue of the dynamics of livelihood diversification in Ethiopia using ratio of per capita income derived from crops to all other sources as a measure of livelihood diversification for the years 1989 and 1994. Their study uses small sample and focuses only on areas affected by famine during the survey years. The present study explores further the demographic, ecological and economic determinants of the dynamics of livelihood diversification using rural household data, which covers lager and representative sample, colleted in Ethiopia in 1994 and 1997. The present study analysis not only the determinants of participation and intensity of off-farm activities but also the determinants of the dynamics between the years 1994 and 1997. The results of this study answer the question that to what extent initial conditions (for instance, asset holdings, income level, demographics) prompts households to diversify to off-farm activities overtime. The results show that participation in off-farm activities is mainly driven by demographic factors, where as land and other asset ownership as well as crop income, together with demographic factors, affect intensity of off-farm activities. The dynamic model result shows that initially female headed households and households with more land holdings subsequently realized less diversification into off-farm activities. On the other land, families with larger initial crop income from main harvest season realized greater income share from off-farm activities. As opposed to the static model, the dynamic model implies that off-farm activities are not substitute for farm activities, at least during the main harvest season