The Determinants and Impacts of Income Diversification in Rural Ethiopia: the Case of Communitties in Southern Nations, Nationalities, and Peoples Regional State

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ADDIS ABABA UNIVERSITY
SCHOOL OF GRADUATE STUDIES
THE DETERMINANTS AND IMPACTS OF INCOME
DIVERSIFICATION IN RURAL ETHIOPIA: THE
CASE OF COMMUNITTIES IN SOUTHERN
NATIONS, NATIONALITIES, AND PEOPLES
REGIONAL STATE
A thesis submitted to the School of Graduate Studies
of Addis Ababa University in Partial fulfillment of the Requirements for the Degree of Master of Science in Economics (Economic Policy Analysis) BY
DEMISSIE DAMITE
Supervisor: Dr. Workneh Negatu
ADDIS ABABA
July 2003
i i
Table of contents
Page
Table of Contents i
List of Tables iii
Acknowledgment iv
Abstract v
CHAPTER 1. INTRODUCTION
1.1 Background 1
1.2 Problem Statement 4
1.3 Objectives and Significance of the Study 7
1.4 Organization of the thesis
CHAPTER 2. LITERTURE REWIEW
2.1 Conceptual Framework
10
2.2 Empirical Literature on Patterns and Determinants of Income Diversification 13 2.3 Empirical Evidences of Effects of Income Diversification 21 2.4 Empirical Literature on Ethiopia 31
CHAPTER 3. METHODOLOGY AND MODEL SPICIFICATION
3.1 Data Sources 38
3.2 Theoretical Framework and Model Specification for Determinants of 39 Income Diversification
3.3 Theoretical Framework and Model Specification for Consumption Insurance 51 3.4 Framework for Analysis of Income Distribution and Welfare Level 56 CHAPTER 4. EMPIRICAL ANALYSIS
4.1 Description of Study Area and Survey Data
1.2 Description of the S.N.N.R. State 60
4.1.1 Description of Study Area 68
4.1.2 Description of Data Set 70
i i i
4.2 Estimation Results and Discussion
4.2.1 Empirical Results for Determinants of Income Diversification 85 4.2.2 Empirical Results for Consumption Smoothing and Diversification 103 4.3 Analysis of Income, Income Inequality and Diversification. 107 CHAPTER 5. SUMMARY AND POLICY IMPLICATIONS

5.1 Summary of Results 120
5.2 Policy Implication 128
REFERENCES 135
APPENDICES 140
DECLATION SHEET
i v
List of Tables
Table
Page
Table 4.1: Regional (SNNPRS) Gross Domestic Product by Economic Activity at 1995 Constant Factor Cost (1995-2000) in Million Birr) .........................................67 Table 4.2: Characteristics of Sampled Communities .........................................................69 Table 4.3: Mean Income (Birr) of Households by Livelihood Strategy..............................75 Table 4.4: Household Participation (%) in Livelihood Diversification by Sampled Communities 77 Table 4.5: Mean Income (Birr) and Share of Income Source by Study Villages ................79 Table 4.6: Summary of Household Characteristics and endowment by Livelihood Strategy 81 Table 4.7: Determinants of Household Livelihood Diversification Choices: Multinomial Logit Results. .. 87 Table 4.8: Determinants of Level of Income Diversity: Sample Selection Corrected OLS Results ............ 94 Table 4.9: Consumption Change Regressed on Income Changes (growth rate) .................103 Table 4.10: Consumption Changes Regressed on Income Changes (levels) Stratified by Income Diversity 105

Table 4.11: Impact Income Diversityone on Total Consumption Change .................................................... 106 Table 4.12: Percentage Share and Mean Household Income per Income Diversity Groups......................... 108 Table 4.13: Percentage Households in Livelihood Strategy per Income Diversity Level ...109 Table 4.14: Comparison of Gini of Rural Household Income Diversity Level..................112 ...................................................................................................................... Table 4.15: Effects of Income Componenets on Income Inequality....................................117 Table 4.16: Gini Coefficients by Livelihoods Strategies across Agro Climates ..................118 v

Acknowledgement
I wish to express my sincere gratitude to my advisor Dr. Workeneh Negatu for his critical reading of the thesis and for his valuable comments that gave the work its final shape. I also wish to extend my gratitude to Dr....
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