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. II used a
Jour-wave panel dataJrom the Ethiopian Rural Household Survey over the period
1994-2009. The impacts oj 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
Jeasible option to tackling rural poverty and vulnerabilities in Ethiopia, especially
at a time when agriculltlre is increasingly becoming precarious due to the
changing climate.