Income diversification strategies among rural households in developing countries

Abstract

Purpose – The purpose of this paper is to examine the income strategies adopted by rural households in Ghana and analyzes the determinants of households’ choice of income portfolio. Design/methodology/approach – A multinomial logit approach is employed by the paper to investigate the determinants of various income strategies adopted by households in rural Ghana. Findings – Results indicate that household characteristics, location and infrastructure all play a role in explaining the adoption of income strategies other than a purely on-farm strategy by households. Education is a key determinant of income strategies involving non-farm wage employment, while access to credit and electricity play important roles in non-farm self-employment income strategies. Practical implications – The findings of the paper call for a promotion of off-farm income opportunities to complement farm incomes and to enhance access of rural households to these sources of income. Originality/value – The paper models rural household income portfolios into mutually exclusive categories which enables the application of the multinomial logit approach. The paper deviates from mainstream rural income diversification literature that has focussed on assessing the determinants of income shares.

Livelihood Diversification Strategies to Climate Change among Smallholder Farmers in Northern Ghana

“…In the Western region of Ghana, a censored Tobit regression model using the Simpsons Index of Diversity (SID) shows that 65 per cent of the sampled farm households have diversified into the non‐farm sector, whilst income from the non‐farm sector constitutes about 29.05 per cent of total household income (Agyeman et al, ). The major determinants of diversity are the age, the number of years of education, female‐headed households, household income per capita, the number of agricultural extension visits, productive assets owned and the nature of the road (Senadza, ; Dzanku, ; Zereyesus, Tsiboe, & Amanor‐Boadu, ). Moreover, the gender analysis on the non‐farm livelihood strategies using the Ghana Living Standard Survey 5 for the whole of Ghana shows that men are more likely to be in wage employment whilst women mostly engage in self‐employment activities as a diversity strategy (Ackah, ).…”

“…The available empirical evidence in Ghana unequivocally indicates the existence of a large and growing livelihood diversification among subsistence farm households (Lay & Schüler, ; Armah et al, ; Senadza, ; Dzanku, ). Senadza () argues that many rural farm households are much interested in securing their livelihoods than maximise farm income hence the increase livelihood diversification strategies. Even among farm households in Ghana, rural Northern Ghana is moderately diversified, although it is the most vulnerable to climate change and has the highest poverty levels (Ghana Statistical Survey, ).…”

“…Although Al‐Hassan and Poulton () have reported finding a positive relationship between livelihood diversification and the poverty reduction poverty among rural farm households in Ghana, very limited empirical literature abounds in Ghana and Northern Ghana, with references to diversification. Furthermore, studies have either measured income diversification among farmers in the Western region of Ghana (Agyeman, Asuming‐Brempong, & Onumah, ) or non‐farm diversity in Northern Ghana and Ghana as a whole (Owusu, Abdulai, & Abdul‐Rahman, ; Senadza, )without considering the main push factor that lead households to diversify, changes in the climate. Besides, these studies have not examined the on and non‐farm diversification strategies of farm households and the general subsistence farm household income diversification.…”

Urban Farm-Nonfarm Diversification, Household Income and Food Expenditure in Ghana

“…This same period saw the intense advocacy of diversification into nonfarm activities by farm households in rural areas of developing countries (see inter alia, Barrett & Reardon, 2000;Reardon et al, 2006;Barrett et al, 2001;World Bank, 2003;Davis, 2006;Senadza, 2012;Owoo & Naudé, 2014;Senadza, 2014). In theory, literature reveals that "demand-pull" and "distress-push" factors motivate farm households to diversify into nonfarm activities (Davis, 2006).…”

Relative Contribution of Child Labour to Household Farm and Non-Farm Income in Ghana: Simulation with Child's Education

“…Senadza (2014) used the GLSS 5 data and found that farm only, and farm combined with nonfarm self-employment dominated the adoption of income strategies by households by accounting for more than 80 percent of responses. It was also found that household characteristics such as age of the household head, household size composition, educational level and other household characteristics all play a role in explaining the adoption of income strategies by households.…”