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Evidence shows that nonfarm livelihood activities are an important source of income for rural households and they may interact with farm activities in different ways. This article attempts to examine the investment linkage in which evidence is scarce in the study area. Also the paper examines the determinants of households’ nonfarm employment participation. The study uses household level data collected from 455 randomly selected rural families in Tigray, northern Ethiopia. Findings from the logit regression indicate that livestock holding, access to credit and male-headed households significantly increase nonfarm employment participation. Conversely, the possibility of nonfarm employment participation decreases with age, number of children, access to irrigation and remittance. Moreover, the propensity score matching estimates and auxiliary estimates using tobit and ordinary least square (OLS) consistently indicate nonfarm employment significantly decreases agricultural inputs investment. Similarly, participation in nonfarm activities significantly lowers investment in crop inputs. Further, findings from this study indicate that nonfarm livelihood activities may help in reducing rural poverty. Moreover, the study suggests that policies targeting enhancement of agricultural inputs investment should look at other options rather than relying on income generating nonfarm activities to increase agricultural inputs investment.

Households’ nonfarm livelihood participation and agricultural inputs investment: Evidence from northern Ethiopia