Determinants of Livelihood Diversification among Households in the Sub-Saharan Town of Merawi, Ethiopia

Livelihood diversification could be determined by complex and diversified factors. Yet, unlike the rural areas, the situation is unexplored in the case of towns of developing economies. The objective of this study was to identify the determinants of households’ livelihood diversification in a sub-Saharan town. Data were collected from 151 households and 4 key informants. In addition, secondary data were collected to supplement the primary data. Descriptive statistics were employed to identify the households’ livelihood strategies. The level of households’ livelihood diversification was estimated by the Herfindahl–Hirschman Index, whereas multinomial logistic regression was employed to investigate the determinants of the households’ livelihood diversification. The result of the Herfindahl–Hirschman Index shows the presence of three levels of livelihood diversification among households: no diversification (11.26%), moderately diversified (26.49%), and highly diversified (62.25%). The model analysis revealed that out of eighteen predictor variables, only seven variables, namely, total cattle possession (B = 0.329, p < 0.1 ), land ownership (B = 120.572, p < 0.01 ), income from irrigation (B = 2.902, p < 0.05 ), total annual cash income (B = 0.000, p < 0.01 ), price fluctuation problem (B = 2.899, p < 0.05 ), market price fluctuation plus total cattle possession (B = 12.892, p < 0.01 ), and no price fluctuation plus total cash income (B = 0.000, p < 0.01 ) were found significantly influencing households’ livelihood diversification. Households in the study town are engaged in different livelihood diversification strategies rather than relying on farm only for improving their wellbeing, and livelihood diversification was gaining a dominant role in households’ income. Even if the Ethiopian agricultural policy gives more attention to the agriculture sector, there is evidence that households’ income is not limited to agriculture. Therefore, nonfarm livelihood diversification should be strengthened by government initiatives to sustain households’ livelihood diversification.