Heterogeneous Constraints, Incentives And Income Diversification Strategies In Rural Africa
A burgeoning recent literature emphasizes "livelihood" diversification among smallholder populations (Chambers and Conway 1992, Davies 1993, Ellis 1998, Bryceson 1999, Ellis 2000, Little et al. 2001). While definitions vary within this literature, the concept of livelihoods revolves around the opportunity set afforded an individual or household by their asset endowment and their chosen allocation of those assets across various activities to generate a stream of benefits, most commonly measured as income. This holistic perspective has the potential to enhance our understanding of the strategies that farm households pursue to ensure food and income security given the natural and economic environment in which they operate. Diversification patterns reflect individuals' voluntary exchange of assets and their allocation of assets across various activities so as to achieve an optimal balance between expected returns and risk exposure conditional on the constraints they face (e.g., due to missing or incomplete markets for credit, labor, or land). Because it offers a glimpse as to what people presently consider their most attractive options, given the incentives and constraints they face, the study of diversification behavior offers important insights as to what policy or project interventions might effectively improve either the poor's asset holdings or their access to higher return or lower risk uses of the assets they already possess. Since diversification is not an end unto itself, it is essential to connect observed livelihood strategies back to resulting income distributions and poverty. Not all diversification into off-farm or non-farm income earning activities offers the same benefits and not all households have equal access to the more lucrative diversification options. Yet the livelihoods literature offers little documentation or explanation of important differences between observed diversification strategies. This paper addresses that gap by offering a comparative analysis using data from three different countries, Cote d'Ivoire, Kenya and Rwanda. Like Dercon and Krishnan (1996) and Omamo (1999), we emphasize that interhousehold heterogeneity in constraints and incentives must factor prominently in any sensible explanation of observed diversification behaviors. Indeed, section 4 demonstrates that at a very fundamental level - the choice of basic livelihood strategy - households would prefer locally available livelihood strategies other than those they choose, were they not constrained from doing so. A simple appeal to the principle of revealed preference thus suggests that heterogeneous constraints and incentives play a fundamental role in determining livelihood diversification patterns manifest in income diversification data. The plan for the remainder of this paper is as follows. The next section presents the basic conceptual foundation from which we operate. Section 3 then introduces the data sets and definitions employed in the analysis. Section 4 presents findings relating to the observed variation in income sources across the income distribution, to distinct livelihood strategies pursued by rural African households, to the determinants of strategy choice, and to the effects of alternative livelihood strategies on income dynamics. These findings point especially to significant rural markets failures - especially with respect to finance and land - that force poorer subpopulations to select strategies offering demonstrably lower returns while wealthier subpopulations are able to enjoy higher return strategies to which entry is at least partly impeded by fixed costs and lower marginal costs of participation. Section 5 concludes.
|Date of creation:||2001|
|Date of revision:|
|Contact details of provider:|| Postal: Warren Hall, Ithaca NY 14853|
Web page: http://aem.cornell.edu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Weber, Michael T. & Staatz, John M. & Holtzman, John S. & Crawford, Eric W. & Bernsten, Richard H., 1988.
"Informing Food Security Decisions in Africa: Empirical Analysis and Policy Dialogue,"
200969, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Michael T. Weber & John M. Staatz & Eric W. Crawford & Richard H. Bernsten & John S. Holtzman, 1988. "Informing Food Security Decisions in Africa: Empirical Analysis and Policy Dialogue," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(5), pages 1044-1052.
- Dercon, Stefan, 1998.
"Wealth, risk and activity choice: cattle in Western Tanzania,"
Journal of Development Economics,
Elsevier, vol. 55(1), pages 1-42, February.
- Stefan Dercon, 1996. "Wealth, risk and activity choices: cattle in Western Tanzania," CSAE Working Paper Series 1996-08, Centre for the Study of African Economies, University of Oxford.
- Stefan Dercon, 1996. "Wealth, risk and activity choices: cattle in Western Tanzania," Economics Series Working Papers WPS/1996-08, University of Oxford, Department of Economics.
- Stefan Dercon & Pramila Krishnan, 1995.
"Income portfolios in rural Ethiopia and Tanzania: choices and constraints,"
Economics Series Working Papers
WPS/1995-12, University of Oxford, Department of Economics.
- Pramila Krishnan & Stefan Dercon, 1995. "Income portfolios in rural Ethiopia and Tanzania: choices and constraints," CSAE Working Paper Series 1995-12, Centre for the Study of African Economies, University of Oxford.
- Frank Ellis, 1998. "Household strategies and rural livelihood diversification," Journal of Development Studies, Taylor & Francis Journals, vol. 35(1), pages 1-38.
- Barrett, Christopher B. & Reardon, Thomas, 2000. "Asset, Activity, And Income Diversification Among African Agriculturalists: Some Practical Issues," Working Papers 14734, Cornell University, Department of Applied Economics and Management.
- de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-417, November.
- Steven Were Omamo, 1998. "Transport Costs and Smallholder Cropping Choices: An Application to Siaya District, Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 116-123.
- Thomas Reardon & J. Edward Taylor & Kostas Stamoulis & Peter Lanjouw & Arsenio Balisacan, 2000. "Effects of Non-Farm Employment on Rural Income Inequality in Developing Countries: An Investment Perspective," Journal of Agricultural Economics, Wiley Blackwell, vol. 51(2), pages 266-288.
- Barrett, Christopher B., 1997. "Food marketing liberalization and trader entry: Evidence from Madagascar," World Development, Elsevier, vol. 25(5), pages 763-777, May.
- Christopher B. Barrett & Paul A. Dorosh, 1996. "Farmers' Welfare and Changing Food Prices: Nonparametric Evidence from Rice in Madagascar," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 656-669.
- Reardon, Thomas, 1997. "Using evidence of household income diversification to inform study of the rural nonfarm labor market in Africa," World Development, Elsevier, vol. 25(5), pages 735-747, May.
- Marcel Fafchamps & Bart Minten, 1999.
"Property rights in a flea market economy,"
Economics Series Working Papers
WPS/1999-25, University of Oxford, Department of Economics.
- Marcel Fafchamps & Bart Minten, 1999. "Property rights in a flea market economy," CSAE Working Paper Series 1999-25, Centre for the Study of African Economies, University of Oxford.
- Fafchamps, Marcel & Minten, Bart, 1999. "Property rights in a flea market economy," MTID discussion papers 27, International Food Policy Research Institute (IFPRI).
- Frank Ellis, 2000. "The Determinants of Rural Livelihood Diversification in Developing Countries," Journal of Agricultural Economics, Wiley Blackwell, vol. 51(2), pages 289-302.
- Marcel Fafchamps & Forhad Shilpi, 2000.
"The Spatial Division of Labor in Nepal,"
Economics Series Working Papers
44, University of Oxford, Department of Economics.
- Reardon, Thomas & Taylor, J. Edward, 1996. "Agroclimatic shock, income inequality, and poverty: Evidence from Burkina Faso," World Development, Elsevier, vol. 24(5), pages 901-914, May.
- Staal, Steven & Delgado, Christopher & Nicholson, Charles, 1997. "Smallholder dairying under transactions costs in East Africa," World Development, Elsevier, vol. 25(5), pages 779-794, May.
- Ellis, Frank, 2000. "Rural Livelihoods and Diversity in Developing Countries," OUP Catalogue, Oxford University Press, number 9780198296966, December.
When requesting a correction, please mention this item's handle: RePEc:ags:cudawp:14761. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.