The Political Economy Dynamics of Rural Household Income Diversification: A Review of the International Literature

Abstract

This paper presents a summary of the international literature published on the thematic area of the political economy analysis of income diversification related to the activities of rural households with emphasis on the importance of these activities in economic growth, poverty reduction and sustainable development over time. The review provides information about the overall effect of income diversification on economic welfare of rural householders. Typically, a positive relationship exists between income diversification activities and economic welfare indicators such as income, wealth, consumption and nutrition. However, recent empirical literature evidence shows that income diversification could also increase income inequality and contribute to marginalization of certain groups of people. For example, there is evidence to indicate that in some parts of the world that relatively few better-off rural householders with sufficient capital inputs achieve higher levels of income diversification from multiple sources of income portfolios partly due to increased support services from State and community sources. The benefits of income diversification have not been fully realized by many poor rural households largely due to capital constraints, weak links to the political power structures, and conflicts that adversely affect these households. Overall, income diversification can be an important poverty-reducing strategy if its use as a policy strategy is continuously examined and assessed in terms of its political economy dimensions with regards to productivity, equity and sustainability of rural livelihood activities with particular attention paid to vulnerable and marginalized groups.

Drivers of income diversification among rural households in the Ethiopian central highlands

“…As noted above, several studies have shown the different benefits of income diversification. Farm households diversify their income to address food insecurity and poverty, stabilize income, and reduce and manage agricultural risks (Awotide et al, 2012; Wan et al, 2016; Atuoye et al, 2019; Etea et al, 2019; Kidane & Zegeye, 2019; Salifu, 2019; Kassegn & Endris, 2021), and invest in innovations and sustain agriculture (Barbieri & Mahoney, 2009; Asravor, 2017). A considerable share (33%–45%, and 27%) of income has been generated from non‐ and off‐farm income sources in sub‐Saharan Africa and Ethiopia, (Devis et al, 2017; Adem et al, 2018), respectively.…”

“…Most literature showed that household income diversification behavior emanated from push (survival‐led) motives such as population growth, declining farm size, rising landlessness, land degradation, low agricultural productivity, insufficient food from conventional farming, poor resource endowment, market failure, seasonality, and risk of environmental shocks (Asfaw et al, 2018; Dagunga et al, 2018; Etea et al, 2019; Loison, 2015). These motives are mainly to address food insecurity and poverty, self‐insurance (manage risks) and sustain agriculture (Dagunga et al, 2018; Etea et al, 2019; Salifu, 2019).…”

“…Diversification behavior emanated from pull (opportunity‐led or choice) motives such as emerging markets for labor and high‐value commodities, development of infrastructures, and implementation of structural adjustments (Lemi, 2009; Loison, 2015; Dagunga et al, 2018; Etea et al, 2019; Asfaw et al, 2018; Salifu, 2019). These motives are mainly to accumulate assets and wealth, increase income, and enhance the standard of living.…”

Drivers of Households’ off-the-farm Income Diversification Patterns in Nigeria: Panel Evidence Using General Household Survey Data

“…Theory posits that income diversification activities can be driven by two motives: (a) demand-pull or accumulation-based income diversification and (b) distress-push or security-based income diversification (Dedehouann & Mcpeak 2019; Salifu, 2019). Income diversification based on accumulative motive involves activities with the intention to enhance the extent of capital owned by rural households whose objective would be to establish a minimum threshold of capital needed to maintain their lifestyle and well-being (Dev et al, 2017; Salifu, 2019). Strategies usually adopted for this kind of income diversification include off-agriculture wage-based jobs, migration and land acquisition (Imai et al, 2015).…”

Transformation of family-based entrepreneurial activities in rural areas

“…While family-based economic activities provide opportunities for further economic development, questions have been raised about increasing income inequality among households. Notably, poor rural households find it especially difficult to rise out of poverty because of their limited capabilities to expand income from diversified activities (Salifu, 2019). Scoones (1998) argued that the ability to pursue different livelihood strategies depends on the primary material and social, tangible, and intangible assets that people own.…”