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The Effects of Risk and Shocks on Non-Farm Enterprise Development in Rural Ethiopia

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  • Rijkers, Bob
  • Söderbom, Måns

Abstract

This paper assesses the impact of risk and shocks on non-farm enterprise development in rural Ethiopia using a matched household–enterprise–community dataset augmented with precipitation based measures of risk. The likelihood of running a non-farm firm and the returns to running such firms co-vary with agricultural productivity shocks. Diversification into non-farm activities thus provides limited protection against fluctuations in agricultural performance. This may explain why ex-ante risk has no impact on the likelihood of running a non-farm firm. It nonetheless hampers non-farm enterprise development by repressing investment and inducing sorting into less capital-intensive activities.

Suggested Citation

  • Rijkers, Bob & Söderbom, Måns, 2013. "The Effects of Risk and Shocks on Non-Farm Enterprise Development in Rural Ethiopia," World Development, Elsevier, vol. 45(C), pages 119-136.
  • Handle: RePEc:eee:wdevel:v:45:y:2013:i:c:p:119-136
    DOI: 10.1016/j.worlddev.2012.10.013
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    3. Yonas Alem & Jonathan Colmer, 2015. "Consumption Smoothing and the Welfare Cost of Uncertainty," CEP Discussion Papers dp1369, Centre for Economic Performance, LSE.
    4. Grimm, Michael & Hartwig, Renate & Lay, Jann, 2017. "Does forced solidarity hamper investment in small and micro enterprises?," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 827-846.
    5. Van den Broeck, Goedele & Kilic, Talip, 2019. "Dynamics of off-farm employment in Sub-Saharan Africa: A gender perspective," World Development, Elsevier, vol. 119(C), pages 81-99.
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    7. Kuldeep Singh & Madhvendra Misra, 2021. "Developing an agricultural entrepreneur inclination model for sustainable agriculture by integrating expert mining and ISM–MICMAC," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(4), pages 5122-5150, April.
    8. Yonas Alem & Jonathan Colmer, 2015. "Consumption Smoothing and the Welfare Cost of Uncertainty," STICERD - Economic Organisation and Public Policy Discussion Papers Series 059, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    9. Grabrucker, Katharina & Grimm, Michael, 2018. "Is there a rainbow after the rain? How do agricultural shocks affect non-farm enterprises? Evidence from Thailand," TVSEP Working Papers wp-011, Leibniz Universitaet Hannover, Institute of Development and Agricultural Economics, Project TVSEP.
    10. Alem, Yonas & Colmer, Jonathan, 2015. "Consumption smoothing and the welfare cost of uncertainty," LSE Research Online Documents on Economics 63816, London School of Economics and Political Science, LSE Library.
    11. Uchenna R. Efobi & Ibukun Beecroft & Scholastica N. Atata, 2019. "Female Access and Rights to Land, and Rural Non‐farm Entrepreneurship in Four African Countries," African Development Review, African Development Bank, vol. 31(2), pages 179-189, June.
    12. Friebel, Guido & Leinyuy, Jibirila & Seabright, Paul, 2015. "The Schubert Effect: When Flourishing Businesses Crowd Out Human Capital," World Development, Elsevier, vol. 68(C), pages 124-135.
    13. Nkechi S. Owoo & Wim Naudé, 2017. "Spatial proximity and firm performance: evidence from non-farm rural enterprises in Ethiopia and Nigeria," Regional Studies, Taylor & Francis Journals, vol. 51(5), pages 688-700, May.
    14. Nagler, Paula & Naudé, Wim, 2014. "Young Entrepreneurs in Rural Africa: Prevalence, Determinants, Productivity," IZA Discussion Papers 8564, Institute of Labor Economics (IZA).
    15. Nagler, Paula & Naudé, Wim, 2014. "Non-Farm Entrepreneurship in Rural Africa: Patterns and Determinants," IZA Discussion Papers 8008, Institute of Labor Economics (IZA).
    16. Mintewab Bezabih & Andrea Mannberg & Eyerusalem Siba, 2014. "The land certification program and off-farm employment in Ethiopia," GRI Working Papers 168, Grantham Research Institute on Climate Change and the Environment.

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