Determinants of income diversification among rural households: The case of smallholder farmers in Fedis district, Eastern hararghe zone, Ethiopia

This paper examines the determinants of income diversification among rural households using cross sectional data collected from Fedis District of Eastern Hararghe Zone, Ethiopia. Both descriptive statistics and rigorous econometric models are used to analyze the data. Multinomial logit model was used to pinpoint factors influencing households’ participation in non/off-farm activities while the determinants of non/off-farm income were analyzed by Tobit model. The descriptive statistics result shows that agricultural activities are the most important source of income for rural households in Fedis District contributing 77% of total household income with the remaining 23% originating from non-agricultural activities. About 84% of the sample households involved in non/off-farm activities and only 16% did not participate in any non/off-farm activity. Participation in non/off-farm employment activities and the level of income derived are found to be influenced by human capital related variables (gender and age of household head, number of economically active family members, education level of household head and presence of children attending school), livelihood assets (livestock holding, size of cultivated land), livelihood diversifying strategy (crop based diversification through number of crops grown and harvested) and infrastructure related variable (proximity to market). The results imply that these factors need to be considered by policy makers in the planning of agricultural and non agricultural initiatives in this study area.   Key words: Smallholder, livelihood diversification, participation decision, household income, determinants of economic choices, Ethiopia.