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

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.

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Article provided by Elsevier in its journal World Development.

Volume (Year): 45 (2013)
Issue (Month): C ()
Pages: 119-136

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Handle: RePEc:eee:wdevel:v:45:y:2013:i:c:p:119-136
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